Adjustment of mortgage rates at renewal poses risks for households but benefits banks in a rising rate environment. As long as rate increases are moderate, most households will cope, but new regulations may complicate renewal for households whose circumstances have weakened. While banks may face an uptick in mortgage loan problems, their net interest income will benefit as mortgages reset at higher rates, which helps offset the rising cost of funds. An economic downturn would likely be needed to bring significant loan problems.

In order to calculate the total tax bill of the average Canadian family, we add up all the various taxes that the family pays to federal, provincial, and local governments. This includes income taxes, payroll taxes, health taxes, sales taxes, property taxes, fuel taxes, carbon taxes, vehicle taxes, import taxes, alcohol and tobacco taxes, and the list goes on. Average Canadians also pay the taxes levied on businesses. Although businesses pay these taxes directly, the cost of business taxation is ultimately passed onto ordinary Canadians.

They build portfolios based on a client’s risk tolerance, goals and personal profile, and they rebalance periodically so the target mix of stocks and bonds is maintained. Some robos offer light financial planning, but the main attraction is having your portfolio run for you at a low fee.

Incumbent asset and wealth managers and emerging FinTech players need to work together to “win” in this new paradigm. In order to do this, traditional players have to be more open towards engaging with the new entrants.

The first issue faced in the project was the confusion of terms. Is risk tolerance the same as ‘risk profile’? Does it include sub-factors like capacity and perception? The inconsistency of terminology was evident with every stakeholder – regulators, solution providers, academics, advisors and firms, all of whom used many terms interchangeably or combined multiple sub-factors into a single term. This is not surprising since the understanding of contributing factors in this field has and continues to changedramatically. The scope of this project was to look at the process up to and including the determination of a client’s ‘risk profile’. We did not examine the methods by which the risk profile is then used to map to suitable types of portfolios or products, or how products are risk rated.

As many current self-directed investors show a strong interest in receiving more guidance from their firms, robo-advisors may provide a viable, low-cost alternative to going it alone or working with a traditional full-service advisor, according to the J.D. Power 2016 Canadian Self-Directed Investor Satisfaction Study, SM released today.

Under the terms of the Transaction, Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own. The consideration to be received by Spectra Energy shareholders is valued at US$40.33 per Spectra Energy share, based on the closing price of Enbridge common shares on September 2, 2016, representing anapproximate 11.5 percent premium to the closing price of Spectra Energy common stock on September 2, 2016. Upon completion of the Transaction, Enbridge shareholders are expected to own approximately 57% of the combined company and Spectra Energy shareholders are expected to own approximately 43%.

A national survey conducted by Leger has found that 42% of Canadians rank ‘money’ as their greatest stress. That stress is driving Canadians to lose sleep, reconsider past financial decisions, argue with partners and lie to family and friends. Women report more financial stress than men.

The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2015. Including all types of taxes, that bill has increased by 1,939% since 1961.

The average Canadian family now spends more of its income on taxes (42.4%) than it does on basic necessities such as food, shelter, and clothing combined (37.6%). By comparison, 33.5% of the average family’s income went to pay taxes in 1961 while 56.5% went to basic necessities.

In 2015, the average Canadian family earned an income of $80,593 and paid total taxes equaling $34,154 (42.4%). In 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5%).

In this year’s survey, they polled Canadians with investable assets from across the country. The aim was to rethink what is know about Canadian investors – across generations and by gender. In the process, they hoped to both confirm and debunk some conventional thinking as it can also lead to conventional attitudes and behaviours. Focus was placed on how Canadians are investing and why.

The economy was supposed to fire on all cylinders in 2015. Sufficient time had passed for the often-mentioned lags in monetary and fiscal policy to finally work their way through the system according to many pundits inside and outside the Fed. Surely the economy would be kick-started by: three rounds of quantitative easing and forward guidance; a record Federal Reserve balance sheet; and an unprecedented increase in federal debt from $9.99 trillion in 2008 to $18.63 trillion in 2015, a jump of 86%. Further, stock prices had gained sufficiently over the past several years, thus the so-called wealth effect would boost consumer spending.

For those investors that are not familiar with Nevsky, it and it's founder Martin Taylor have one of the most successful investment track records within the hedge fund universe. After generating cumulative investment returns of 6,406% over the past 20 years, Mr. Taylor has decided to closed down their funds and return the money to investors. Their decision to close down is not because of poor performance, but because they find they can no longer invest with confidence in the current market environment and their growing fears of the unknown.

Their letter is well worth reading for any of you that are serious about investing.

When we asked Canadians if they invest with an advisor, we found that 30% do. Of the 70% who do not, 19% are “do-it-yourself” (DIY) investors, those who invest but do not work with an advisor. A further 52% do not have investments under their direct control.

The highest rates of working with an advisor are in the Prairies and Ontario. In each case, 35% of Canadians in these regions work with advisors. In Quebec, just 22% of respondents say they work with an advisor.

Note: There is a significant age gap when it comes to investing with an advisor: 37% of men and women 55+ work with investment advisors, whereas among men and women aged 35-54, only 25% say they invest with an advisor.

Over the past few years, a new form of advice has emerged with a new breed of wealth management firm starting to gather retail assets away from incumbent players. These firms leverage client information and algorithms to develop automated portfolio allocation and investment recommendations tailored to the individual clients. They have been coined the term “robo-advisors,”.

While this new service has been in the U.S, for a few years now, in Canada, it is still relatively new. All investors should be aware of this new and growing trend in investing.

Future business activity will reflect two economic realities: 1) the over-indebted state of the U.S. economy and the world; and 2) the inability of the Federal Reserve to initiate policies to promote growth in this environment.

The first reality has been widely acknowledged, as developed and developing countries both have debt-to-GDP ratios sufficiently large to argue for a slowing growth outlook (Chart 1).

Retirement used to mean the end of work. But now we’re at a tipping point: a majority of people will be continuing to work after they retire — often in new and different ways. Nearly half (47%) of today’s retirees say they either have worked or plan to work during their retirement. But an even greater percentage (72%) of pre-retirees age 50+ say they want to keep working after they retire, and in the near future it will become increasingly unusual for retirees not to work. This new phenomenon is driven by four forces:

A national survey conducted by Leger, on behalf of Financial Planning Standards Council (FPSC), has found that 42 % of Canadians rank ‘money’ as their greatest stress. That stress is driving Canadians to lose sleep, reconsider past financial decisions, argue with partners and lie to family and friends.

From the cyclical monthly high in interest rates in the 1990-91 recession through June of this year, the 30-year Treasury bond yield has dropped from 9% to 3%. This massive decline in long rates was hardly smooth with nine significant backups. In these nine cases yields rose an average of 127 basis points, with the range from about 200 basis points to 60 basis points (Chart 1). The recent move from the monthly low in February has been modest by comparison. Importantly, this powerful 6 percentage point downward move in long-term Treasury rates was nearly identical to the decline in the rate of inflation as measured by the monthly year-over-year change in the Consumer Price Index which moved from just over 6% in 1990 to 0% today. Therefore, it was the backdrop of shifting inflationary circumstances that once again determined the trend in long-term Treasury bond yields.

It is interesting to note that in this period of slower growth and lower inflation, long-term Treasury bond yields did rise for short periods as inflationary psychology shifted higher. However, the slow growth meant that the economy was too weak to withstand higher interest rates, and the result was a shift to lower rate levels as the economy slowed. Since the U.S. economy entered the excessive debt range, eight episodes have occurred in which this yield gained 84 basis points or more.

“No stock-market crash announced bad times. The depression rather made its presence felt with the serial crashes of dozens of commodity markets. To the affected producers and consumers, the declines were immediate and newsworthy, but they failed to seize the national attention. Certainly, they made no deep impression at the Federal Reserve.” Thus wrote author James Grant in his latest thoroughly researched and well-penned book, The Forgotten Depression (1921: The Crash That Cured Itself).

Study's findings: Investors under 30 years of age: Lack Knowledge. Investors between 30 and 40: Lack Time. And investors over 50 years of age: Lack Trust.

Compared to men, women are more likely to have their investing confidence impeded by a lack of investing knowledge and because they do not understand investment terms. Female respondents are also more likely to categorize their knowledge as low.

The U.S. economy continues to lose momentum despite the Federal Reserve’s use of conventional techniques and numerous experimental measures to spur growth. In the first half of the year, real GDP grew at only a 1.2% annual rate while real per capita GDP increased by a minimal 0.3% annual rate. Such increases are insufficient to raise the standard of living, which, as measured by real median household income, stands at the same level as it did seventeen years ago (Chart 1).

Thirty-year treasury bonds appear to be undervalued based on the tepid growth rate of the U.S. economy. The past four quarters have recorded a nominal “top-line” GDP expansion of only 2.9%, while the bond yield remains close to 3.4%. Knut Wicksell (1851-1926) noted that the natural rate of interest, a level that does not tend to slow or accelerate economic activity, should approximate the growth rate of nominal GDP. Interest rates higher than the top-line growth rate of the economy, which is the case today, would mean that resources from the income stream of the economy would be required to pay for the higher rate of interest, thus slowing the economy. Wicksell preferred to use, not a risk free rate of interest such as thirty-year treasury bonds, but a business rate of interest such as BAA corporates.

Sir John Templeton, one of the most famous investors, once observed that Bull Stock Markets are characterized by four distinct phases of investors' emotions: Pessimism, Skepticism, Optimism and Euphoria. With investor confidence (and complacency) hitting 27 year highs, which phase are we in today?

Portfolio risk is a function of the number of stocks held in portfolios. We simulate portfolios using daily observations for all traded and delisted equities in Canada from 1975 to 2011 and we calculate several measures of risk, including heavy-tailed to account for black swan events. For each risk measure, we calculate the average number of portfolio holdings and the upper limits of these holdings to assure investors of a specific reduction in diversifiable risk. In contrast to previous literature that suggests 10-15 stocks are enough to provide adequate diversification for an average investor, we find that in fact more than 50 stocks are needed to achieve the same level of diversification most of the time instead of on average.

The Federal Open Market Committee (FOMC) has continuously been overly optimistic regarding its expectations for economic growth in the United States since the last recession ended in 2009. If their annual forecasts had been realized over the past four years, then at the end of 2013 the U.S. economy should have been approximately $1 trillion, or 6%, larger. The preponderance of research suggests that the FOMC has been incorrect in its presumption of the effectiveness of quantitative easing (QE) on boosting economic growth. This faulty track record calls into question their latest prediction of 2.9% real GDP growth for 2014 and 3.4% for 2015.

Our 2014 Global Investor Sentiment Survey results indicate that by many measures Canadian – and global – investors are optimistic about the year ahead. Following 2013, a year that saw the global economy grow at its fastest pace in nearly three years, investors show growing optimism about stocks, their investment returns and their ability to reach their financial goals. But this positive outlook is tempered by a lingering sense of uncertainty, as 52% of global investors indicate they’ll follow a more conservative strategy this year. This is lower than 2013, however, when 57% of global respondents said they would take on less risk in the year ahead.

Investing is a way of taking control and becoming financially independent. Look after yourself no matter what. Build your knowledge and build your wealth.

This is my fourth year of researching the areas of women and finance. This project arose from a strong feeling: something was not quite right in the way that women were being portrayed by both the media and the financial industry in terms of their levels of financial confidence. I knew that there was no connection between the negative messages being perpetuated about women and my practical experience working with competent, smart female investors.

Over the last few decades, applied economic theory, empirical research, and emerging global “best practices” have taught us much about what the characteristics of the ideal system are. Three features stand out:

Retirement saving/consumption formulas that provide a predictable, adequate standard of living over complete post-work life spans.

Full participation by all citizens in such pension arrangements.

Cost-effective pension delivery institutions that operate first and foremost in the interests of the people they are meant to serve.

To spread the load and diversify risks, responsibility for provision of retirement income is ideally shared between public and private actors in three ‘Pillars’.

With CPP enhancement off the table, pension reform might now morph into a host of provincial initiatives, involving voluntary PRPPs at one end of the spectrum and new mandatory government-sponsored plans at the other. It is the latter possibility that is most interesting. The retirement system can indeed be improved but we caution that some proposed changes could do more harm than good. The trade-off between retirement security and standard of living before retirement means that forced savings at too high a rate may not be in the best interests of many households. In this Vision, we identify the biggest gaps in coverage, analyze a possible new government-sponsored supplementary plan and then apply a new scoring method for assessing its effectiveness. We conclude that a new plan at the provincial level can indeed be a good thing, even if it is mandatory, but proper design is key to its success.

2013 proved to be the year of the consumer, with gold jewellery demand close to pre-crisis levels and investment in small bars and coins hitting a record high. The result was annual gold demand of 3,756.1 tonnes, valued at US$170bn. However, outweighing the impressive consumer demand were the effects of ETF outflows and lower central bank buying, resulting in 2013 demand 15% below the strong volumes recorded in 2012.

In The Theory of Interest, Irving Fisher, who Nobel Laureate Milton Friedman called America’s greatest economist, created the Fisher equation, which states the nominal bond yield is equal to the real yield plus expected inflation. It serves as the pillar of macroeconomics and as the foundational relationship of the bond market. It has been reconfirmed many times by scholarly examination and by the sheer force of historical experience. Examining periods of both low and high inflation offers insight into how each variable in the Fisher equation affects the outcome.

Canadian retail investors are exposed to financial markets that are among the most developed yet poorly regulated in the world. They enjoy an overwhelming supply of products and services to address their financial and investment needs. Advice is a component of this unduly complex marketplace. Canadians historically have chosen to invest and manage their financial decisions with the help of advisors. But things are changing . According to J. D. Power and Associates, one third of full service brokerage clients also do some investing online, and 26% of bank mutual fund investors are also using the online channel.

Whether its investment dealer shenanigans, incompetent advisers, high mutual fund fees, the non-bank ABCP fiasco, poor fund performance , the Earl Jones Ponzi debacle, or advisor fraud, retail investors are looking at alternatives to the commission-driven advisor channel. Too many 'advisors' are basically salespersons interested in collecting trailer commissions on mutual funds and other expensive packaged products. A recent Nanos Research poll found that 77 % of respondents rated medical doctors as "high" or "very high" when it comes to honesty and ethics in their profession; business executives 25% , bankers 31%. and Stockbrokers rated just 18%

A guide to using Vanguard’s risk profiling tool as a starting point to discovering a client’s true risk profile.

Your clients’ perception of ‘risk’ and what the investment industry portrays as ‘risk’ can differ radically. This can lead to challenges for advisers if they rely solely on quantitative measures of risk, such as ‘volatility’ for example.

Experience in markets where fee-based advice models are well established, suggests that advisers should consider taking a more comprehensive approach to educating their clients about the nature of investment risk, as well as understanding their clients’ true and complete risk profile.

For investment professionals only – not for retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

A new report from the McKinsey Global Institute examines the distributional effects of these ultra-low rates. It finds that there have been significant effects on different sectors in the economy in terms of income interest and expense. From 2007 to 2012, governments in the eurozone, the United Kingdom, and the United States collectively benefited by $1.6 trillion both through reduced debt-service costs and increased profits remitted from central banks (exhibit). Nonfinancial corporations—large borrowers such as governments—benefited by $710 billion as the interest rates on debt fell. Although ultra-low interest rates boosted corporate profits in the United Kingdom and the United States by 5 percent in 2012, this has not translated into higher investment, possibly as a result of uncertainty about the strength of the economic recovery, as well as tighter lending standards.

Meanwhile, households in these countries together lost $630 billion in net interest income, although the impact varies across groups. Younger households that are net borrowers have benefited, while older households with significant interest-bearing assets have lost income.

For Q4 2013, 94 companies in the S&P500 have issued negative EPS guidance and 13 companies have issued positive EPS guidance. If these are the final numbers, it will mark the highest number of companies issuing negative EPS guidance and tie the mark for the lowest number of companies issuing positive EPS guidance since FactSet began tracking the data in 2006.

The percentage of companies issuing negative EPS guidance is 88% (94 out of 107). If this is the final percentage for the quarter, it will mark the highest percentage on record (since 2006).

On average, companies have issued EPS guidance that has been 5.7% below the mean EPS estimate. This percentage decline is smaller than the 5-year average of -11.1% and 5-year median of -7.8%.

The average price change (2 days before issuing guidance through 2 days after issuing guidance) for companies issuing negative EPS guidance for Q4 is -1.5%, which is below above the five-year average (-0.8%). The average price change for companies issuing positive EPS guidance is -0.1%, which is well below the five-year average (+3.0%). This is the first time the average price change for companies issuing positive EPS guidance has been negative since Q4 2008.

For the current fiscal year, 149 companies have issued negative EPS guidance and 116 companies have issued positive EPS guidance. There was a 15% increase in the number of companies issuing positive EPS guidance from the end of September through the end of December.

Pension fund managers and retirement savers could face lower-than-assumed investment returns over the long term using realistic projections. The implications would be bigger pension liabilities for some defined-benefit pension plans, and a need to save more and work longer for individual savers, if they are to avoid a larger-than-expected drop in their retirement lifestyles. Editor's Note: If the professional pension fund managers are faced with low investment returns, then so do individual investors!

Prospectively, using information available as of February 2013, we predict long-term returns in the neighbourhood of 2.5 percent (0.5 percent real) on long-term bonds and of 6.9 percent (4.8 percent real) on stocks. For a balanced portfolio (50/50 split), we therefore expect a real return of 2.7 percent for the next decade.

Back in 1980, just 9% of Harvard MBAs went into financial services. By 2008, the figure was up to 45%. Lured to Wall Street and the City by generous pay packages, financiers were encouraged to chase rapid earnings growth. Short-term profit priorities led to extreme risk-taking at many firms, with employees selling complex derivative products they did not understand (and that many of their corporate clients did not need), and lending to people who could not afford the repayments.

In A crisis of culture we examine the global financial services industry’s record on ethical conduct; we investigate the level of knowledge financial services executives have of their own firm and of their industry; and we explore the role that greater knowledge plays in building a stronger culture within financial services firms. The main findings are as follows.

Five years after the financial crisis, many investors remain wary and risk-averse. Nearly half of U.S. investors are negative overall about their financial futures, with worries ranging from “concerned” to “nervous,” “pessimistic” and even “depressed.” Interestingly enough, financial advisors are adopting a more optimistic outlook than investors—with 59% feeling “positive” about the current investing environment.

In addition, about half of U.S. investors do not feel in control of their financial futures and are not confident they are making the right savings and investment decisions. This means that investors need answers on how to better manage their money for the future—in order to achieve their financial goals. Given the strong link between investor sentiment and behavior, it is clear that investors need to be more proactive and take control if they want to develop a more positive mindset.

Saving for long‐term goals is the most commonly taught aspect of managing money, and indeed, this is regularly reported as a common area of late teen money management in the IEF Youth Literacy Survey. Learning how debt builds through compound interest is critical learning too, and a major source of distress for those who don’t learn it according to IEF research (see Learning and Key Events, Age 20‐34). As students move into later grades in high school, more and more learn about managing debt from their parents. This type of teaching increases from 56% in Grade 9 to 79% in Grade 12. Growing money through compound interest is a topic that is perhaps geared to later life, although many teach it to their kids in high school.

November 19, 2013
by Canadian Association of Accredited Mortgage Professionals (CAAMP)

During the past decade, residential mortgage credit in Canada has expanded at an average rate of 8.6% per year. The moderation of housing activity since the recession has resulted in slower growth of the mortgage market. The current rate of 4.6% (in the year to August 2013) represents moderate growth. The volume of outstanding residential mortgage credit is $1.19 trillion as of thisAugust.

Mortgage credit will continue to expand, but the growth rate will decelerate further. As is illustrated in the chart to the right, the volume of residential mortgage credit outstanding is projected to grow by 4.5% in 2013 (about $52 billion, to $1.21 trillion at year end). For 2014, the forecast growth rate is 3.25% (to $1.25 trillion), followed by 3.0% growth in 2015 (to $1.29 trillion). The primary cause of mortgage growth is completions of housing, which are expected to slow during 2014 and 2015.

Third quarter gold demand of 868.5 tonnes was worth US$37bn. A year-on-year decline in demand reflected further depletion of western investors’ ETF positions. After reaching record levels in Q2, consumer demand remained very strong in Q3 and year-to-date has set a record pace. Central banks continued to add gold to reserves, but at a slower rate.

Over the last two decades, we have seen a major decline in the number of branches and locations for banks and credit unions. In 1990, there were almost 8,000 branches (7,964) and, by 2002, the number had fallen to 5,908, a decline of 26%.

The Canadian Bankers’ Association reports that, between 2006 and 2012, there was a small increase in the number of bank branches in Canada: from 5,902 to 6,205. But since 1990, there has been a decline of more than 1,700 branches, a 22% drop, and the number of branches increased by only 5.1% from 2002 to 2012, with most of the new branches added in Ontario (195), Alberta (98), and British Columbia (37).

In many communities today, credit unions or caisses populaires are the only financial institution. In 2012, the Credit Union Central of Canada reported that credit unions were the only financial institution in 380 communities. The Desjar- dins Group noted in 2013 that caisses populaires are the only financial institution in 388 towns and villages in Quebec. But the total number of credit union and caisse locations has also dropped from 3,603 in 2002 to 3,117 in 2012, a decline of 13.5%.

In 2010, a study by Vision Critical (commissioned by ING Direct bank before it was taken over by the Bank of Nova Scotia) found that banking fees in Canada were among the highest in the world. More than half of Canadians (55%) have fee-based chequing accounts and, on average, pay $185 per year in fees for these accounts. Credit card rates remain high in spite of low Bank of Canada prime rates. Typical bank card interest rate hover around 20% annually and department store cards are closer to 30%.

Canadian real GDP increased by 0.6% in July, more than recouping the 0.5% decline seen the month prior. Gains were broad-based across the goods-producing (+1.2%) and services (+0.3%) sectors.

Local real estate boards have begun to release September housing data, and the numbers issued thus far are all of double digit magnitude. Toronto (+30%), Calgary (+19%) and Vancouver (+64%) have reported solid year-over-year sales increases.

In a speech earlier this week, Senior Deputy Governor of the Bank of Canada, Tiff Macklem, focused on the prospects for Canada’s exports. This segment of the economy accounts for one-third of Canada’s national income, but prevailing global economic uncertainty will likely mean a delay in the rotation of growth drivers in Canada from consumers and governments towards exports and investment.

The Ivey PMI edged higher to 51.9 in September following what was a modest recovery in August. The reading is consistent with an economic rough patch over the past few months.

What’s going on in the world today? It’s hard to keep up. Some facts are familiar to anyone who reads the news. Unemployment is high. Growth is slow. Shale gas is a big deal. But beyond the caps-lock headlines, subtler, but no less significant, shifts are changing the US economy and reshaping the global financial order. Here are 10 that have surprised—and might surprise.

Highlights

Uneven external demand weighed on Canada’s economic growth in Q2, even as domestic consum- ers and the housing market displayed better-than-expected momentum. The Canadian economy is forecast to grow at a modest 1.7% pace this year, before picking up to 2.4% next year and to 2.6% in 2015.

Housing and consumer spending are expected to make a larger contribution to overall growth than previously expected. Elevated household indebtedness and higher interest rates should still lead these areas to slow next year.

A downgrade to both our U.S. and global economic outlook over the near term will likely translate into weaker export gains, and business investment prospects have been lowered in turn. The transition to more export-led growth is still forecast, only delayed until next year.

Canada

This week TD Economics released our latest Quarterly Economic Forecast for Canada, which outlines how Canadian households continue to drive growth, while exports and business investment are stuck in the backseat.

A rebound in July retail sales confirmed the resiliency of the Canadian consumer. The retail data rounds out our expectation for July GDP, which is expected to recover after a decline in June.

On the other hand, the CFIB Business Barometer for August showed that the mood among small busi- nesses remains quite flat. Stronger business investment is required to help kick start Canada’s economy, but businesses need to become more confident about the future before that takes hold

Key Findings:

One-in-six (17%) people who are not fully retired, expect they will never be able to afford to retire from all paid employment.

Over a quarter (26%) of 55-64 year olds have semi-retired, and two-fifths (41%) of 25-34 year olds expect to do so.

Encouragingly, more than half (54%) of today’s retirees say that their preparations for retirement turned out to be at least adequate. On the other hand, two-fifths (40%) did not prepare adequately: of these, two-fifths (40%) only realised this at or after entering retirement and nearly half (47%) do not think they will ever make up this shortfall.

The majority of both those fully retired (81%) and not fully retired (60%) have never received a significant financial gift or loanfrom parents or relatives. A quarter of the working age people who have received such a gift or loan used it to help with their education (26%), paying off debts (26%), housing costs (25%) or the purchase of a major item (26%).

Entering retirement was accompanied by a fall in income for 72% of retirees. However, this drop in income was not matched by a similar drop in spending, with only 48% experiencing a fall in outgoings in retirement.

Working age people expect to retire on average at 63, two years older than their parents, who on retired average at 61.

After Bank of Canada Governor Stephen Poloz gave an economic pep talk on Wednesday, U.S. Federal Reserve Chair Ben Bernanke killed the buzz by not beginning the widely expected “taper” of its asset purchases.

But, beneath the din of Fed furor, both Canadian wholesale and manufacturing sales data showed a re- bound in July after weakness in June. This lends credence to our forecast for better Canadian economic growth in Q3.

Friday saw another benign reading on Canadian inflation for August. This suggests that Governor Poloz’s activities will be confined to pep talks for awhile yet, with interest rates hikes unlikely before late 2014.

Often, provincial comparisons will focus exclusively on tuition fees; however, as transfer payments to universities are increasingly insufficient, institutions have implemented additional compulsory fees which students much also pay in addition to their tuition. Because this impacts the overall amount students owe, for the purposes of this report unless otherwise stated we use combined tuition and other compulsory fee projections in both provincial comparisons and the Cost of Learning Index.Within these broad trends are some key highlights:

Since 1990–91, average tuition and other compulsory fees in Canada have increased from $1,464 to $6,348 in 2012–13, are estimated to reach $6,610 this fall and will continue to climb to an estimated $7,437 in 2016–17. Adjusting for inflation, by 2016–17 tuition and compulsory fees will have quadrupled since 1990–91.

Ontario, the most expensive province, will see its tuition and other compulsory fees climb from $8,403 this fall to $9,517 in 2016–17

In its interest rate announcement, the Bank of Canada held the overnight at 1.00% and reiterated its forward looking language. The Bank acknowledged that the rotation in economic growth drivers has not been as quick as many had hoped – a theme that was reinforced by data releases this week.

Canadian real exports fell 1.2% in July, putting net trade on track to detract from growth for a second con- secutive quarter in Q3. Meanwhile, housing and consumer spending continued to heat up in the quarter.

Employment rose 60,000 in August, but job creation remains soft on a three month moving average. The Canadian unemployment rate has been stuck in a 7.1% to 7.2% since December of 2012.

The Canadian economy grew by 1.7% in Q2, on an annualized basis, roughly in line with what we were expecting. However, a downward revision to Q1 (2.2% from 2.5%) puts the average rate of economic expansion for the first half of the year at just under 2%.

Also this week, we learned that Canada’s current account deficit widened to $14.6 billion in the second quarter. The deterioration was fairly broad-based, but was mostly driven by an increase in the deficit on trade in goods and relatively weak inflows in foreign portfolio investment.

Corporate profits were also down by 0.8% in Q2 – weakness in the non-financial sector, particularly in the manufacturing sector, contributed to the headline decline.

The second half of the 2013 looks more promising than the first for the Canadian economy. Optimism surrounding future prospects was foreshadowed by the Canadian small businesses barometer reading.

Talk of the Federal Reserve scaling back (tapering) and eventually ending its bond buying program (QE3) has resulted in a sharp rise in U.S. bond yields since early-May. Most of this can be attributed to an increase in the term premium, and is largely justifiable.

The remainder of the rise in yields is related to the pulling forward of expectations for the first rate- hike and anticipation of a faster pace of subsequent monetary policy tightening -- neither of which is warranted.

Given that a September-taper is largely priced in, and assuming economic data cooperates, the FOMC is likely to act on September 18. However, risks remain with recent data slightly less supportive.

The taper is likely to be modest initially and weighed towards Treasuries, but its course will not be pre-determined. This will leave the FOMC several months of data to adjust policy if required.

Tapering does not constitute tightening, with the stance of monetary policy becoming more accom- modative still -- this should be supportive for equities, especially amid a strengthening economy.

As it embarks on the taper, the FOMC is likely to concentrate on effectively communicating its forward guidance emphasizing that short-term rates will remain at current levels for a long time -- likely until mid-2015. This could lower bond yields a bit after the September meeting by more closely aligning market expectations to their own.

Aligning expectations may require the FOMC to alter its thresholds, or more firmly emphasize the notion that thresholds are not triggers.

Strong performance alone is no longer enough for investment management professionals to earn investors’ trust. Behavior – and the ability to demonstrate aligned interest – is also of foremost importance.

Investors worldwide say that trusting an investment manager to act in their best interest is the single most important factor in making a hiring decision. Achieving high returns was cited only half as often, and fee amounts or structure only one-fifth.

Though it exists, investors’ trust in the investment management industry is fragile; only half (53 percent) of investors trust investment management firms to do what is right. Retail investors are less trusting of the industry than their institutional counterparts (51 percent vs. 61 percent, respectively). From a global perspective, investors in Hong Kong are far more trusting of the industry than those in the United States and United Kingdom; 68 percent of Hong Kong investors trust investment firms, compared to 44 percent of US investors and 39 percent of UK investors.

This limited amount of trust reflects a lack of confidence in the broader financial services industry. Hit by the shock of the 2008 financial crisis and ongoing scandals around money laundering, rogue trading, rate manipulation, and insider trading, the industry lost the faith of its key constituents – the clients, investing public, and other participants that help it function on a day-to-day basi

On the sector-level, the top ten country aggregates were most bullish in the Financials sector and most bearish in the Energy sector. Five of the ten largest increases in individual stock exposure were in the Financials sector, and three were Canadian banks: Royal Bank of Canada (+$3.8 billion), The Toronto- Dominion Bank (+$3.1 billion) and The Bank of Nova Scotia (+$2.6 billion). The Energy sector, on the other hand, suffered from outflows from Royal Dutch Shell (-$4.2 billion from combined class A and B shares), BP (-$2.1 billion), and Eni SpA (-$1.7 billion).

One year following the federal government tightened mortgage insurance regulations, the existing home market has fully recovered

In July, existing home sales were up 9.0% from year ago levels and home prices rose 8.1% from year ago levels. From a regional perspective, strength in Greater Toronto, Greater Vancouver, Calgary and Edmonton was offset by weakness in Montreal and most major urban areas in the Atlantic Provinces.

Overall, while the housing market has shown some signs of revival in recent months, activity is likely to be tempered by rising interest rates and the market is still expected to achieve its soft landing.

In other news, manufacturing shipments fell 0.5% in July – a fourth decline in 6 months. In real terms, sales were down an even larger 1.3%.

In a turbulent quarter, demand fell by 12% to 856.3 tonnes (t). A wave of outflows from ETFs was the principal cause of the decline, although this was mitigated by record demand for gold bars and coins. Continuing the theme of the previous quarter, demand for jewellery grew significantly to reach multi-year highs. Supply declined by 6%, the primary reason being a marked contraction in recycling.

In December of 2012, Shinzō Abe led the Liberal Democratic Party of Japan (LDP) to a landslide win over the Democratic Party, which had been in office since 2009. Abe won the election promising to end deflation and revive the economy by deploying a mix of flexible fiscal policies, aggressive monetary easing, and growth-boosting structural reforms.

Thus far, he has delivered on the first two fronts. In January, Mr. Abe launched a fiscal stimulus program worth around 2% of GDP. In April, under a newly-appointed governor, the Bank of Japan introduced its Quantitative and Qualitative Monetary Easing (QQME) program. The program aims to reach stable 2% inflation by doubling the monetary base by the end of 2014. These massive liquidity injections will drive up the size of the BoJ’s balance sheet from roughly 35% of GDP currently, to 60% at the end of 2014.

It’s another risk-off day as global stock markets are clearly in the loss column (the third day running) — none more so than the Nikkei which plunged 576 points or 4% to 13,824 and a firmer tone to the yen to a seven-week high is at play here to a very large extent. There were also a pair of disappointing earnings results (IHI Corporation and Pioneer) which accentuated the market falloff. Declines were spread across Asia, in fact, with many other markets off between 1-2%. European bourses are down about 0.5% so the damage is more contained there, where recent signs support the view that recessionary pressures are fading.

Against this background, it is not surprising to see some flight into bonds, but the yield drop thus far has been fairly modest. Gold is struggling still at the 50-day moving average (news that the miners have reinstated their hedging programs has exacerbated the selling pressure) and leading the commodity complex back down in general.

On Tuesday, Russian potash producer OAO Uralkali announced that it would break away from Belaru- sian Potash Co. (BPC) – the marketing organization that previously exported potash for Uralkali and Belarusian producer Belaruskali. Uralkali has alleged that Belaruskali violated the export agreement by making deliveries outside the BPC. Uralkali will now export its products independently – thus, breaking up the potash cartel. Prior to the split, BPC had marketed around 43% of global potash ex- ports compared to Canpotex’s 25% (the international marketing arm owned by Saskatchewan potash producers). The two agencies had accounted for almost 70% of total global potash exports giving them pricing power in world markets.

WTI prices topped US$100 per barrel, narrowing the Brent-WTI spread to less than US$5 per barrel for the first time since January 2011.

Canada’s international trade deficit narrowed in May, as a 1.6% drop in exports was more than offset by a 3.2% decline in imports.

Employment was unchanged in June, although the underlying details were soft; 32,000 full-time positions were shed, offset by similar gains in part-time positions. The unemployment rate held steady at 7.1%.

The S&P 500® Equal Weight Index (EWI) was introduced in January 2003, pioneering the subsequent development of non-capitalization weighted indices, which have become the dominant theme of index innovation for the past decade.

Equal weighing is factor indifferent. Because it randomizes factor mispricing, it is an attractive option for proponents of the theory that the market is inefficient and, at times, misprices factors.

Equal weighting represents a choice of portfolio construction in which the constituent weightings are not correlated with their expected returns. Consequently, an equal-weight index can serve as the performance benchmark for all alternative-weighted indices.

The S&P Equal Weight Indices have different properties from their underlying headline indices, including a lower concentration of individual stocks and slower-changing sector exposures.

Historically, the S&P Equal Weight Indices have outperformed their market capitalization (market cap) weighted equivalents over longer time periods. The level of outperformance has also varied considerably under different market conditions.

The outperformance of the S&P Equal Weight Indices results from differing weighting and rebalancing processes. In terms of risk factor exposure, a complex and dynamic combination of size and style risk factors have contributed to return differences. It may be difficult to replicate the equal weight index return outcomes through a simplistic combination of style and sector indices.

Criticism of equal weight indices has centered on increased turnover and capacity constraints relative to market-cap weighted indices. While true in abstract theory, neither is a serious hurdle in practice.

Cash balance plans are rising in popularity in the U.S. and could overtake 401(k) plans. The number of cash balance plans in existence has increased by more than 500% in the past decade.

WHY PLAN SPONSORS SHOULD CARE

Cash balance plans are a form of hybrid pension plan, not that different from Target Benefit Plans (TBPs). The U.S. experience may presage a high level of acceptance of TBPs in Canada once the provinces roll out legislation that allows TBPs in single-employer situations. That is expected within a year or two. The most recent Morneau Shepell 60 Second Survey underscored the high level of interest in TBPs and other shared-risk solutions.

Real GDP increased by 0.1% in April, a fourth consecutive monthly gain. Canada’s economic health in April can be tied to domestic demand, with services like wholesale trade, retail trade and finance, insur- ance and real estate leading the advance.

While April’s gain was solely driven by the service sector, growth recorded so far this year has been broad based across most major industries. While the Canada economy has had a decent start to 2013, the waters could get somewhat choppier over the next few months.

Canadian financial markets, like those around the world, reacted dramatically to U.S. Federal Reserve Chairman Ben Bernanke’s comments about the unwinding of quantitative easing. However, signals from Canada’s real economy this week were far more reassuring.

Households continue to slow their pace of debt accumulation, pushing the debt-to-income ratio lower for the second consecutive quarter. That is a welcome development as consumer leverage is a key risk to Canada’s economy. The housing market also shows evidence of pulling off a welcome “soft landing”.

In April, consumers showed that despite spending at a more modest pace on a trend basis, they were confident enough to load up on new cars for the fourth straight month. Inflation is also unfolding as ex- pected, starting to drift gradually higher, while remaining very benign overall. There is little urgency for the Bank of Canada to raise interest rates before the end of next year.

There is a widespread perception in Canada that the country is on the brink of a major retirement crisis. A more considered view is that while most recent retirees are faring reasonably well, Canada faces a slowly deteriorating situation in which a growing proportion of future retirees will experience a substantial drop in their standard of living. This article challenges the credibility of even this more considered view, demonstrating that several important sources of future retirement income are being underreported and understated. Further, most projections do not factor in the near-certain increases in the average retirement age that will unfold over the next 20 years. Generalizing from these findings, it is unlikely that the conclusions set out in this article apply only to Canada.

Recently, I wrote an article discussing the “Truth About Wall Street Analysts” and the inherent conflict between Wall Street and individual investors. There is also another group of individuals who are also just as conflicted – corporate executives. Today, more than ever, corporate executives are compensated by stock options, and other stock based compensation, which are tied to rising stock prices. There are billions at stake in many cases and the game of “beat the Wall Street estimate” is critical in keeping corporate stock prices elevated. Unfortunately, this leads to a wide variety of gimmicks to boost bottom line profitability which is not necessarily in the best interest of long term profitability or shareholders. Today we will discuss four tools that have been at the heart of the surge in profitability since 2009 and why such profitability has failed to boost the economy.

New Bank of Canada Governor Stephen Poloz addressed the House of Commons this week and used the opportunity to build confidence that no major shake up in the way the Bank sets monetary policy is forthcoming.

The Canadian economy created 95,000 net new positions in May, the strongest monthly advance in more than a decade. While the headline reading is impressive, the six-month moving average for job creation registers in at a more reasonable 19,000. The unemployment rate edged down by 0.1 percentage points to 7.1% in May.

Canadian exports edged down 0.2% in April, after rising for four consecutive months. Imports were up (+1.2%) and have increased in each of the first four months of 2013. As a result, the international trade deficit widened to $567 million in April. After a strong showing in Q1, we expect export activity to pull-back somewhat in Q2 as the full force of sequestration in the U.S. will be felt.

The Global Fund Investor Experience report was designed to encourage a dialogue about global best practices for mutual funds from the perspective of fund shareholders. This biennial report measures the experiences of mutual fund investors in 24 countries in North America, Europe, Asia, and Africa. Morningstar researchers evaluated countries in four categories—Regulation & Taxation, Disclosure, Fees & Expenses, and Sales & Media—with greater weight given to factual, empirical answers as well as the high-priority issues of fees, taxes, and transparency.

For Fees & Expenses, the highest-scoring country (that is, the country with the lowest costs) is the United States, while the lowest-scoring country is Canada. This pattern has held true for all three editions of the GFIE report, as fund costs tend to be very stable over time.

Abstract: The goal of this study is to penetrate analysts’ “black box” by providing new insights into the inputs analysts use to make their decisions and the incentives that influence these decisions. We survey 365 sell-side analysts and conduct 18 detailed follow-up interviews. Analysts indicate that industry knowledge is the single most important determinant of their compensation and the most important input to both their earnings forecasts and stock recommendations. They rate broker votes, a measure of client satisfaction, as the second most important factor in determining their compensation behind industry knowledge. Analysts report that private phone calls are the most useful form of contact they have with senior management, and that maintaining strong relationships with management is fundamental to their success. Overall, we believe the results of our study are beneficial to academic researchers, investors, and analysts.

From 1980 to 2006, the financial services sector of the United States economy grew from 4.9 percent to 8.3 percent of GDP. A substantial share of that increase was comprised of increases in the fees paid for asset management. This paper examines the signifificant increase in asset management fees charged to both individual and institutional investors. Despite the economies of scale that should be realizable in the asset management business, the asset weighted expense ratios charged to both individual and institutional investors have actually risen over time. If we exclude index funds (an innovation that has made market returns avail- able even to small investors at close to zero expense), fees have risen substantially as a percentage of assets managed.

One could argue that the increase in fees charged by actively managed funds could prove to be socially useful, if it reflflected increasing returns for investors from active management or if it was necessary to improve the effificiency of the market for investors who availed themselves of low-cost passive (index) funds. But neither of these arguments can be supported by the data. Actively managed funds of publicly traded securities have consistently underperformed index funds, and the amount of the underperformance is well approximated by the difference in the fees charged by the two types of funds. Moreover, it appears that there was no change in the effificiency of the market from 1980 to 2011. Arbitrage opportunities to obtain excess risk-adjusted returns do not appear to have been available at any time during the early part of the period. Passive portfolios that bought and held all the stocks in a broad-based market index substantially outperformed the average active manager throughout the entire period. Thus, the increase in fees is likely to represent a deadweight loss for investors. Indeed, perhaps the greatest ineffificiency in the stock market is in “the market” for investment advice.

Income taxes form only a portion of the total tax bill imposed on us by all levels of government (federal, provincial, and local). According to our calculations, a Canadian family with average income of $74,113 paid $9,195 (a 12.4% rate) in income taxes in 2012. While personal income taxes are the single largest type of tax paid by families, they represent less than one-third of the total.

Main Conclusions:

The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2012. The total tax bill of the average Canadian family, including all types of taxes, has increased by 1,787% since 1961.

Taxes have grown much more rapidly than any other single expenditure for the average Canadian family. In contrast to the increase in taxes, expenditures on shelter increased by 1,290%, clothing by 607%, and food by 578% from 1961 to 2012.

The 1,787% increase in the tax bill has also greatly outpaced the increase in the Consumer Price Index (675%), which measures the average price that consumers pay for the goods and services they buy of their own choice including food, shelter, clothing, transportation, health and personal care, education, and many others.

The average Canadian family now spends more of its income on taxes than it does on basic necessities such as food, shelter, and clothing. In 2012, 42.7% of the average family’s income went to pay taxes while it spent 36.9% of its income on food, shelter, and clothing. In comparison, in 1961, the average family spent 56.5% of its income on basic necessities, while only 33.5% of the family’s income went to taxes.

In 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5%). In 2012, the average Canadian family earned an income of $74,113 and paid total taxes equalling $31,615 (42.7%).

Unfortunately, the federal and most provincial governments are running budget deficits, meaning that current taxes do not cover current spending. Of course, these deficits must one day be paid for by taxes. Including deferred taxes (deficits) means the tax bill of the average Canadian family has increased by 1,932% since 1961.

Historically low yields from bonds and recent cautions in the media about a potential “bond bubble” have led many investors to reconsider the role, if any, that high-quality bond funds should have in their portfolios. Investors’ concern is not unreasonable, given that the best predictor of bonds’ future returns—that is, their current yield to maturity—projects returns of 1%–2% over the next ten years. With return expectations low and interest rates close to 0%, investors are justifiably worried about the return potential for bonds. It’s not surprising, therefore, that investors are increasingly looking for alternative ways to improve the expected returns of their portfolios. Our analysis concludes, however, that bond substitutes are unlikely to offer the same diversification potential as broad, high-quality bonds, particularly when the diversification is needed most—that is, when equities are performing poorly. Although bonds’ ability to mitigate equity market risk in down markets is likely to persist, it’s also important to understand what low bond yields mean for balanced portfolio returns. This paper reiterates Vanguard’s belief that bonds remain by far the best diversifier for equity risk, but that current low yields will not provide the same portfolio amplification (i.e., high-return potential) as they have in the past. Low yields from bonds and unchanged equity market volatility will require investors to accept lower total returns and greater downside risk in their portfolios.

Analyses of the financial crisis of 2007-2009 and the continuing effects of a difficult investing environment have largely focused on factors such as the roles of failed and complex financial products, inadequate credit rating agencies, and ineffective government regulators. Nearly unexamined, however, is a key group of actors in the financial landscape, investment consultants. Investment consultants stand as gatekeepers between large investors, such as private and public retirement funds, and those from “Wall Street” who design and sell financial products. Investment consultants hired by these asset owners practically control many investment decisions. Yet, as a whole the profession failed to protect asset owners in the recent financial crisis and has yet to engage in serious self- examination. Much of the reason for the failure can be traced to institutional corruption, which takes the form of conflicts of interest, dependencies, and pay-to- play activity. In addition, a claimed ability to accurately predict the financial future, an ambiguous legal landscape, and a tainted financial environment provide a fertile soil for institutional corruption. This institutional corruption erodes the confidence and effectiveness of the retirement and investment systems today. While not proposing a comprehensive system of reform, this article illuminates a way forward for those in the industry who have the desire to address and implement necessary corrective activity.

National home sales activity rose in April by 0.6%, month-over-month. Home prices increased by 1.3% versus a year ago. In light of recent trends, the housing market is experiencing the hallmarks of a soft landing.

Manufacturing sales declined by 0.3% in March, following a 2.6% increase in February. Manufacturing output is expected to perform better towards the second half of this year, in tandem with global and U.S. economic growth picking up.

Earlier this morning, Canadian inflation data was released for April. In headline terms, prices decreased by 0.2%, on a month-over-month basis. The same statistic for the Bank of Canada’s core inflation measure was 0.1%. Both numbers reinforce the notion that Canada is in a benign inflationary environment.

The recession caught early and late boomers at a critical point in their lives—approaching or having just entered retirement—and both were negatively affected, losing 28% and 25% of their wealth, respectively.

But it’s the youngest cohort, Gen-Xers, who experienced the largest declines in median net worth. From 2007 to 2010, this group lost nearly half (45%) of their wealth—a loss at the median of about $33,000, decreasing already low accumulations.

Wealth Losses During The Great Recession

Birth Groups

Median Net Worth

Median Losses

% Change

2004

2007

2010

2007-2010

2007-2010

Depression Babies (1926 - 1935)

$197,508

$207,965

$207,500

$465

0%

War Babies (1936 - 1945)

$265,797

$265,797

$212,300

$53,497

-20%

Early Boomers (1946 - 1955)

$192,215

$241,333

$173,480

$67,853

-28%

Late Boomers (1956 - 1965)

$119,207

$147,671

$110,870

$36,801

-25%

Gen-Xers (1966 - 1975)

$43,299

$75,077

$41.600

$33,477

-45%

The Great Recession caused substantive losses in median net worth, with Gen-Xers taking the hardest hit.

Inflationary pressures moderated further in April, as the all-items consumer price index rose by only 0.4% on a year-over-year basis, down from 1.0% in March. Core inflation also ebbed relative to the prior month, with core prices only 1.1% higher than they were a year ago.

Lower gasoline prices in April were a key factor bringing down the inflation rate. Prices at the pump were 6% lower than they were last April. Lower prices for passenger vehicles were also a factor containing the headline rate, after having a dramatic jump up back in February. The overall transportation component was down 2.1% year-on-year in April, the main downward contributor to the benign CPI reading.

The only component to see an acceleration in inflation in April was shelter (+1.3% Y/Y versus 1.1% Y/Y in March), driven by higher electricity prices and rents. However, within the key shelter component (26% of the CPI basket), low interest rates have kept mortgage interest costs falling (-4.3% Y/Y) for the past year.

Provincially, price pressures were weakest in BC (-0.8% Y/Y) and New Brunswick (-0.2% Y/Y). B.C. was affected by returning to the GST + PST, while PEI saw the HST implemented in April, taking its inflation rate to 1.8%, the highest reading in Canada tied with Manitoba.

Global first quarter gold demand of 963.0 tonnes was valued at US$50.5bn. Tonnage was 13% lower year-on-year as strong growth in consumer demand – for gold jewellery, bars and coin – was exceeded by substantial net outflows from gold ETFs.

Table 1: Q1 2013 Gold Demand Overview (tonnes)

1st Quarter 2012

1st Quarter 2013

5-Year Average

Year on Year % Change

Jewellery

490.8

551.0

500.0

8

Technology

105.8

102.0

109.8

-7

Investment

395.8

200.8

370.5

-51

Total Bar & Coin

342.5

377.7

281.3

6

ETFs

53.2

-176.9

89.2

-

Central Bank

115.2

109.2

40.1

-5

Gold Demand

1,107.5

963.0

1,020.8

-13

Q1 saw a strong resurgence in demand for gold jewellery, bars and coin; however, overall demand was down 13%. Outflows from ETFs accounted for the bulk of this decline; excluding these outflows overall demand grew year-on-year. India and China propelled growth in both jewellery and bar and coin demand once again, with both markets growing by at least 20%. Central bank demand exceeded 100 tonnes (t) for the seventh consecutive quarter, slightly below the exceptional pace of purchases throughout 2012. Technology demand contracted on further losses in bonding wire and continued erosion of dental demand.

Commodity prices have been making headlines lately, thanks to the sharp selloff seen in mid-April. However, while fairly widespread, the pullback was largely concentrated in precious metals and industrials, while others, including natural gas, agricultural and forestry commodities have held up quite well.

As a result, the TD commodity price index has held fairly steady, suggesting that the impact of the decline in commodity prices on Canada is likely to be softer than headlines would suggest.

Commodity prices overall have exhibited a relatively flat trend since the second half of 2011 – a trend that we expect to continue going forward, as strength in natural gas and lumber prices will be offset by weakness in industrial commodity prices.

The European Union is the new sick man of Europe. The effort over the past half century to create a more united Europe is now the principal casualty of the euro crisis. The European project now stands in disrepute across much of Europe.

Support for European economic integration – the 1957 raison d’etre for creating the European Economic Community, the European Union’s predecessor – is down over last year in five of the eight European Union countries surveyed by the Pew Research Center in 2013. Positive views of the European Union are at or near their low point in most EU nations, even among the young, the hope for the EU’s future. The favorability of the EU has fallen from a median of 60% in 2012 to 45% in 2013. And only in Germany does at least half the public back giving more power to Brussels to deal with the current economic crisis.

Defined Contribution (DC) pensions are often dismissed as being too volatile to meet the needs of individuals or the organizations that employ them. Five years ago, we tried to quantify that volatility. Much has happened since then, including the ongoing financial crisis and some new thinking on income replacement ratios, all of which has prompted us to refine our model and re-examine our conclusions. While DC pensions will never be predictable, the variability in payouts is likely to remain at least tolerable. As Target Benefit Plans and other hybrids are about to be launched it is important to have a clear understanding of what DC plans can deliver.

Even though Defined Contribution pension plans have surged in popularity over the past 20 years, they continue to trouble industry observers. DC plans are almost universally perceived as imposing too much risk on employees, although a clear demonstration of this statement is rarely presented. While there is no shortage of anecdotal evidence, it is neither scientific nor conclusive. Stochastic methods could be used to simulate future performance under DC plans and map out a distribution of possible outcomes but the result is only as good as the input. Yet another approach, and the one we will employ, is to consider what would have happened historically had DC plans always been around. This approach is the most easily understood and has the advantage of relying on actual rather than simulated data.

Retirement is changing. It is too easy, however, to focus on the uncertainty about where we are today in the new world of retirement and ignore how far we have come in overcoming the challenges.That's one of the reasons BlackRock extended this year's Retirement Survey to include recent retirees for the first time. We asked retirees about what helped them prepare for retirement and what might have helped them even more. Our four findings are presented here.

The combined perspectives of retirees, participants and plan sponsors created an often surprising picture of today's retirement, including how participants have enormous power in creating secure retirements if they are fully engaged in their DC plan. The Survey also revealed how motivated plan sponsors are to "do the right thing" for their participants and how much participants welcome their advice and active role. Finally, the Survey explored the role that retirement income plays in creating the financial and psychological foundation of a secure retirement.

Yesterday afternoon, Stephen Poloz was selected to be the new Governor of the Bank of Canada. He will inherit the job from outgoing Governor Mark Carney. In overnight trading, market reaction was mixed and questions arose about the future course of monetary policy in Canada, although uncertainty has since eased this morning. • The challenges presented to Poloz on his first day in the office will be the same ones outgoing Governor Carney has been grappling with for some time: modest global and Canadian economic growth, benign inflation, and domestic risks surrounding household indebtedness and home price overvaluation.

There are no obvious policy implications from the upcoming changing of the guards. The central bank is not a one person operation. Instead, several senior officials influence the direction of interest rates. Many factors go into making interest rate decisions, including economic indicators and the risks present. In turn, our interest rate forecast remains the same – the next move in interest rates should be up, with hikes set to resume at the end of 2014.

Gold’s recent price weakness and the sizeable outflows from gold-backed ETFs have rekindled speculation about the end of gold’s bull run and generated comparisons to its 1980s decline. We discuss the limitations of the most common arguments and contextualise gold’s price pullbacks. We examine structural shifts that the gold market has experienced over the last decade resulting in a robust set of demand factors, very different from that seen during the 1970s.

The widespread sell-off in commodity prices this week led the S&P/TSX to fall to a 5-month low.

The Bank of Canada left the overnight rate unchanged and downgraded its forecast for Canadian economic growth in 2013 to 1.5% (from 2.0% previously).

Several factors, including lower commodity prices, economic underperformance vis-a-vis the U.S., and the anticipated unwinding of quantitative easing stateside, augur for a lower Canadian dollar. We have significantly revised our forecast, with the loonie hitting a low of 90 US cents in early 2014.

Canada’s labour market shed 55,000 jobs in March, the largest monthly decline since the recession.

But while shocking, the trend pace of job creation is actually now more in line with the underlying growth picture in Canada. Job gains have consistently outpaced the broader economy since mid-2012.

Labour market performance has been uneven between sectors. While areas like manufacturing are facing considerable weakness, others more tied to the domestic economy, such as wholesale and retail trade, show little sign of slowing.

Going forward, we anticipate better alignment of industry performance with general shifts in the economy. Moreover, an acceleration in economic growth in the coming quarters should lead to a slightly stronger, and more sustainable pace of job growth after today’s loss.

Another European test confronted global financial markets in March as tiny Cyprus threatened to plunge the region back into crisis. Markets were on edge until it became clear a plan to restructure Cypriot banks would emerge.

Similar to previous European episodes, the risk was never Cyprus per se—it only represents 0.2% of eurozone GDP—but whether the country’s banking stress would weaken the eurozone system as a whole.

One of the most complicated and tedious tasks investors must do is calculate the adjusted cost base (ACB) for each security in their taxable accounts.Your ACB is the original cost of your investment, adjusted upwards for any new purchases (lump-sum buys, reinvested dividends, or reinvested capital gains distributions) and downwards for any sells or return of capital (ROC) distributions.While calculating your ACB is complex and time-consuming, it’s extremely important. If you neglect to adjust your ACB upwards, you’ll pay too much tax when you sell the security. If you neglect to adjust it downwards, you’ll pay too little. Although the latter may sound appealing, the Canada Revenue Agency is not likely to share your enthusiasm.Reporting your ACB would be easier if your brokerage kept the records for you. Unfortunately, they do not always do this accurately.

Canadian economic momentum appears to be picking up in 2013. Real GDP advanced 0.2% in January, broadly in line with our view that economic growth accelerated in the first quarter of this year.

Consumer prices rose sharply in February, led by gasoline, food and auto prices. Still, on an annual basis, headline inflation is running at 1.2%, while core inflation is running at just 1.4% - at the lower end of the Bank of Canada’s 1% to 3% target range.

While the process has been slow and painful given international economic headwinds, the transition back to export-led growth appears to be a key theme unfolding in the first quarter of this year, supported by a revival in U.S. demand.

After a week of intense negotiations, euro zone finance ministers reached agreement last night with Cypriot authorities on the key elements of a macroeconomic adjustment program.

The program will provide €10 billion in financial support for the sovereign in quarterly installments, over a period of three years.

Cyprus’ second-largest bank will be liquidated, and depositors over the €100K insurance limit will take losses.

Outside of Cyprus, the main risk is that depositors in other euro zone countries could withdraw their deposits from banks that are perceived to be weak. As long as this does not trigger a massive capital outflow in that country, the systemic consequences of Cyprus’ crisis should remain minimal.

Global malaise is also occurring at the corporate level and could affect the upcoming earnings season. Two bellwether multinationals, FedEx and Caterpillar, surprised analysts with negative results during the week. Both are highly exposed to the global economy, meaning they have tentacles in multiple industries, and have significant exposure to North America, Asia, and Europe.

Once an individual has retired, asset allocation becomes a critical investment decision. Unfortunately, there is no consensus on what the optimal allocation should be for retirees of varying age, gender, and risk tolerance. This study analyzes the allocation question through a focus on the downside risks created by uncertainty over investment returns and life expectancy. We find that the range of appropriate equity asset allocations in retirement is strikingly low compared with those of typical lifecycle and retirement funds now in the marketplace. In fact, for retirement portfolios whose primary goal is to minimize the risk of depletion and sustain withdrawals, optimal equity allocations range between 5% and 25%. This quite conservative level of equity holdings changes little even when we significantly change our assumptions on capital market returns. We even find that more aggressive equity allocations, those that still retain some focus on depletion risk but also seek to provide substantial bequests to heirs, are also relatively conservative. The study suggests, in short, that the higher equity allocations used in many popular retirement investment products today significantly underestimate the risks that these higher-volatility portfolios pose to the sustainability of retirees’ savings and to the incomes they depend on.

The investor population of Ontario is generally older and more educated: Over 70% are over 44 years of age, and twothirds have graduated from university. Younger investors (less than 35 years of age) are of interest, as they are laying the groundwork of their financial future. These younger investors have smaller portfolios (19% have less than $50,000) but at the same time, have higher incomes (58% make more than $90,000 yearly). They are less engaged overall, and need more support.

Investors generally trust their financial advisers, but advisers need to give their clients greater assurance that their best interest is being served: Investors are somewhat skeptical about what their advisers are telling them: only 20% strongly agree that they trust their adviser’s advice, and 25% strongly agree (39% agree – 64% overall) that advice is influenced by adviser compensation.

There is strong support for a best interest duty: Support for a best interest duty is strong across all groups, with 59% strongly agreeing that it is needed (34% agree and 93% agree overall). Large portfolio investors are more likely to strongly agree that a best interest duty is needed, with 63% of those with $250,000+ portfolios strongly agreeing. In-person dialogue participants were even more supportive of a best interest duty, with 71% strongly agreeing this is needed.

Bonds Continue to Shine and Equities Continue to Bleed Assets

The Canadian mutual fund industry had a positive year in 2012 as investors added CAD 15.9 billion in long-term estimated net flows. The 3.16% organic growth rate was significantly better than 2011’s 1.75% advance. Over the past 10 years, long-term annual flows have averaged CAD 10.8 billion, including 2008’s dreadful CAD 27.6 billion outflow. By way of comparison, U.S. long-term funds grew at a 3.38% clip.

As has been the case since the fallout of 2008, when no asset class was spared, fixed-income and allocation funds have carried the day for the industry as investors have opted for the perceived safety of bonds and professionally managed multi-asset products. Since 2009 investors have poured more than CAD 56.7 billion into bond funds, and another CAD 35.3 billion into allocation funds.

Meanwhile, investors yanked CAD 45.9 billion out of equity mutual funds over the same period (CAD 65 billion counting the roughly CAD 19 billion that headed for the exit in 2008). Investor confidence in stocks was clearly shaken in the 2008 financial crisis, and investors have yet to regain a taste for actively managed equity mutual funds. 2012 marks the fifth consecutive year of significant outflows from equity funds, from which an average of CAD 13 billion has bled per year.

The Canadian economy has been stuck in a rut over the past year, and as a result, clocked in at a measly 1.8% annual average in 2012. Modest economic growth will persist for the first half of 2013. In spite of the muted outlook, there have been some positive economic developments to shine light on.

Last Friday, job creation blew past expectations in February with 50,700 net new positions. Strength was fairly broad-based across sectors, with full-time jobs doing much of the heavy lifting. Hiring intentions among small business owners is also stronger than is typical for this time of year.

Downside domestic risks for the near-term Canadian outlook are less intense than was the case a few months ago. New home construction has come down from 2012 highs; resale home price growth has ebbed of late. The pace of household debt accumulation is also retreating, although the debt-to-income ratio remains elevated.

With the slowdown in the Canadian housing market well entrenched, many are worried about the future value of their homes. This is not surprising as real estate is the largest financial asset most Canadians have in their possession.

The housing market is prone to cyclical ups and downs and we should embark on a gradual, modest, downward adjustment over the next three years.

We project a 3.5% annual rate of return on real estate to prevail beyond 2015 – this is the long-run rate of increase for home prices in Canada. However, this pace will be moderately lower than they have been historically (5.4%).

A string of lacklustre performances over the next few years will mean that the annual rate of return for real estate in nominal terms will be roughly 2% over the next decade. In other words, home price gains should simply match the pace of inflation.

The long-run rate of return for home prices is primarily driven by macroeconomic fundamentals, such as income and economic growth, and demographics (e.g., population and household formation).

Structural changes, including an ageing populace and the number of immigrants as a share of total homebuyers, could influence real estate returns. However, the literature is mixed on whether these changes represent an upside or downside risk to our 3.5% status-quo projection.

The Canadian economy created 50,000 jobs in February; the unemployment rate held steady at 7.0%.

After a sharp drop in January, housing starts bounced back last month to 180,000. However, the downward trend is likely to continue.

The international trade deficit narrowed in February, as exports grew faster than imports.

The Bank of Canada held the overnight rate unchanged at 1.00%, but had a more dovish tone in its communiqué, suggesting lower for longer interest rates.

The Canadian dollar hit an 8-month low following the Bank of Canada announcement. Despite a rebound following the upbeat data reported on Friday, more weakness is likely in store for the loonie in the near term.

Economic data released during the month suggested that a U.S. recovery continues to gain traction, while growth in Canada appears to be headed in the opposite direction. In Asia, developments in Japan have garnered the attention of investors as the yen’s decline against the dollar and the euro resulted in accusations of currency manipulation and speculation of a possible ‘currency war’. Elsewhere, Italy’s inconclusive election reignited concerns regarding the future of Europe’s debt crisis in the face of prolonged political instability.

Economic cycles are an inherent part of how every market-oriented economy in the world operates, and what happens around cycle turning points has always been ECRI's primary focus.

From the perspective, with the onset of the Great Recession - even before the Lehman Brothers collapse - we started to see some striking patterns emerge. In the summer of 2008, we recognized that we were on the cusp of the worst global recession since the early 1980s, and then we got Lehman.

Canadian economic data over the past week showed that 2012 ended with a whimper. GDP grew by only 0.6%-annualized in Q4, and corporate profit growth was also quite weak.

However, we actually heaved a sigh of relief – it could have been worse. Domestic demand was quite resilient in Q4, and net exports made a small contribution to growth. Small businesses in Canada also became more optimistic in February.

Moreover, one of the most encouraging pieces of data for Canada, came from the U.S. this morning. The better-than-expected reading on manufacturing sentiment is a positive for Canada’s exporters, and should help growth improve as 2013 unfolds.

Until people are confronted with the need to generate income, they won’t accurately appraise their alternatives. When presented with five ways of capitalizing on home equity, four out of 10 were unwilling to consider any option. Among those who were willing to consider some of the options, the alternatives that looked best when assessing possible future behaviour did not correspond to what people have actually done in the past. Downsizing looks like a great idea in theory, but people are more likely to take a home equity line of credit instead. While it is clear that the decision to use home equity has a heavy emotional component, the findings make it clear that economics are the primary driver of action.

The biggest emotional decision is selling off a home and becoming a renter. The attitudinal data points to this conclusion. Based on past behaviour, we also know that some 44% of those who sold their home and moved into rentals were driven by either illness or other limitations on their mobility. It takes an enormous force, either economic and/or healthdriven, to cross the divide from homeowner to renter.

The market portfolio concept has a long history and dates back to the seminal work of Markowitz (1952). In that paper, Markowitz defines precisely what portfolio selection means: “the investor does (or should) consider expected return a desirable thing and variance of return an undesirable thing”. Indeed, Markowitz shows that an efficient portfolio is a portfolio that maximizes the expected return for a given level of risk (corresponding to the variance of return). Markowitz concludes that there is not only one optimal portfolio, but a set of optimal portfolios called the efficient frontier. By studying liquidity preference, Tobin (1958) shows that the efficient frontier becomes a straight line in the presence of a risk-free asset. If we consider a combination of an optimized portfolio and the risk-free asset, we obtain a straight line. But one straight line dominates all the other straight line and the efficient frontier. It is called the Capital Market Line (CML). In this case, optimal portfolios correspond to a combination of the riskfree asset and one particular efficient portfolio named the tangency portfolio. Sharpe (1964) summarizes the results of Markowitz and Tobin as follows: “the process of investment choice can be broken down into two phases: first, the choice of a unique optimum combination of risky assets; and second, a separate choice concerning the allocation of funds between such a combination and a single riskless asset”. This two-step procedure is today known as the Separation Theorem.

This morning’s news that manufacturing shipments plunged 3.1% in December only added to what has been a long list of ugly economic data released over the last two weeks.

Existing home sales for January provide hints that housing activity stabilized, following what was a sharp decline in the second half of last year triggered by tighter mortgage insurance rules introduced by the federal government on July 9th.

Looking beyond the volatility in housing activity caused by the changes to mortgage insurance rules, there is no denying that the Canadian housing market has lost some steam and we are still of the view that the housing market will continue to unwind moderately over the next few years.

In value terms, gold demand in 2012 was US$236.4bn – an all-time high. Gold demand in value terms for the final quarter of the year was 6% higher year-on-year at US$66.2bn, marking the highest ever Q4 total.

Global gold demand in Q4 2012 was 1,195.9 tonnes(t), up 4% on the same quarter in 2011. In Q4 2012, the average gold price reached a record level of US$1,721.8/oz, up 1% on the previous record average price in Q3 2011. The average price during 2012 was US$1,669.0/oz, up 6% from US$1,571.5/oz in 2011,

Post-war baby boomers in major developed markets are retiring, withdrawing their accumulated savings from pension and welfare systems that states and corporations are increasingly unwilling to fund for younger generations with less aggregate savings to deploy. New flows in developed markets will come from investors who have grown up in less attractive market conditions than their babyboomer parents did; in emerging markets, younger investors making their first foray into investments will drive organic growth. Both demographic trends will impact product demand.

The number of intermediaries for asset management products and services—retail and private banks, insurers, brokerages, and asset consultants—continues to shrink as aftershocks from the financial crisis spur weaker players to consolidate. More importantly, as other lines of business (such as investment banking) become less lucrative for large global financial conglomerates, they have placed greater emphasis on operations that generate asset-based, non-cyclical cash flows—such as distributing asset management products and offering wealth management services. Intermediaries globally are becoming professional buyers: more selective in the asset managers they choose to distribute, more competitive in terms of the asset allocation advice they provide, and more expensive in terms of revenue-sharing and retrocessions.

Investors poured $86 billion into long-term open-end mutual funds in January. Combined with the $29 billion flow into exchange-traded funds, it was by far the largest one-month flow on record. All asset classes and each of the top 10 open-end fund providers in assets-under-management terms experienced inflows into long-term funds, including a $31 billion inflow into taxable-bond funds and an $18 billion inflow into international-stock funds. American Funds saw its first monthly inflow since June 2009. While it is too early to declare a paradigm shift in investor behavior, the magnitude of the flows is impressive.

Market observers have been waiting for a sign that the multiyear trend of investors buying fixed-income while selling U.S. stock funds would reverse in a so-called “great rotation.” Indeed, the $15 billion inflow to U.S. stock funds, the largest since 2004, plays into that story as does the strength of flows into active U.S. stock funds, which recorded their first inflow in 23 months. For the month, the S&P 500 gained 5.18% while the Barclays Aggregate Bond Index fell 0.70%. The slight rise in Treasury rates last month provided further evidence for those who are calling for a shift to equities.

Most equity markets languished in negative territory for much of the week as large mutual funds and pension funds stepped to the sidelines and fast-money hedge funds took profits following strong gains since late last year. However, a number of markets pared their losses or flipped into positive territory on Friday with the help of solid Chinese and U.S. economic data.

Chinese exports rose by a swift 25% pace in December versus the year-ago period, and consumer inflation declined to 2% in January from 2.5% (see page 4 for details).

The Canadian labour market lost 22,000 net jobs in January and the unemployment rate edged down to 7.0%. January’s poor result should be seen as more of a pay-back for the outsized job gains seen in late 2012 when economic growth slowed. Job creation should come in around 10,000-20,000 in the next few months in a modest growth environment.

At 160,600 units in January, housing starts came in at their lowest level since July 2009, down 18.5%. The sharp January decline is not that surprising following what is believed to have been an unsustainable pace of construction in 2012. Given the current cooling of the housing market in general, Canadians should not look to residential construction as a source of strength moving forward in 2013.

While Canada’s international trade deficit narrowed in December to $0.9 billion, both exports (-0.9%) and imports (-2.8%) declined, painting a discouraging picture of Canada’s economy at the end of 2012. Although December’s slip is hardly uplifting, export growth should bounce back in 2013 matching increased demand from the U.S.

2012 was a very good year for the U.S. housing market. Home prices were up almost 8% and housing starts by close to 30%. The gains have prompted questions about whether the market has come too far too fast.

An examination of long-term fundamentals suggests that housing still has considerable upside potential. Housing starts have only just surpassed the average trough experienced in previous housing cycles over the last fifty years; construction is still well under expected household formation; and, the improvement in housing affordability suggests little downside risk to home prices.

The growth in construction has been led by multi-family units. In December, the level of multi-family starts surpassed the average over the last cycle running from 1995 to 2007. With continued pressure on the homeownership rate, rental demand is likely to remain strong and support continued gains in the multi-family sector.

Despite some strength seen as the year came to a close, commodity prices were, on average, lower in 2012 relative to 2011. The weakness was driven largely by energy and industrial metals prices, as a global economic slowdown hit demand.

Looking ahead, economic activity around the globe is expected to pick up towards the end of this year and into next, which bodes well for commodity prices. As such, we expect the commodity complex as a whole to bounce back somewhat in 2013 – led by natural gas and lumber prices. In 2014, the uptrend in energy, base metals and forestry prices will remain largely intact, while precious metals and agriculture prices are expected to lose some ground.

Payrolls come in a notch below expectations, but revision to previous months solidifies the theme of ongoing job market recovery.

January manufacturing reports lend further credence to the idea that the soft-patch is behind us. U.S. manufacturing ISM gains almost three points, and is away from the precipice. Chinese PMI remains in slight expansion while eurozone PMI indicates the declines in activity may be coming to an end.

Canada

Canadian 10-year bond yields touch 2.00%, marking an 8-month high.

TD Economics has pushed back the first Bank of Canada rate hike to the first quarter of 2014.

November GDP surprises markets on the upside, growing by 0.3%.

Small business owners were more optimistic in January, with near-term hiring intentions at a post-recession high.

FISCAL CAPACITY: BC’s finances are squeezed because a series of cuts to both personal income taxes and business taxes since 2000 have steadily eroded provincial revenues.

If BC collected today the same amount in tax revenues as a share of the economy (GDP) as we did in 2000, we would have $3.5 billion more in public funds this year alone. Meaning, no deficit, and the ability to invest in enhanced or even new public services.

FAIRNESS: Significant cuts to personal and corporate income taxes, combined with increases to regressive taxes like sales tax and Medical Services Plan (MSP) premiums, have produced a tax system that is much less fair. Taxation has been shifted from corporations to families, and from upper-income families to middle- and modest-income ones.

The overwhelming majority of British Columbians (90%) think there should be income tax increases for those at the top. As to where those higher taxes should kick in, a clear majority (57%) says at $100,000 per year of income. A majority (67%) also think major corporations are asked to pay less tax than they should....

Editor's Note: Where the C.D. Howe Institute is thought to be a conservative 'think-tank', the CCPA is thought to be their counterpart on the liberal side of the political spectrum. InvestingForMe does not endorse either side and we include this paper simply because we believe there is a long-term shift in taxation underway. As governments struggle with rising debt and deficits the discussion around raising taxes is increasing with a number of jurisdiction already raising tax rates and implementing new taxes. InvestingForMe believes it is helpful for Canadians to be aware of the discussion currently underway.

Apparently a number of institutional investors, particularly pension and mutual fund managers, have been standing on the sidelines, hoping to increase equity exposure into a pullback.

But once again the market didn’t cooperate, as most equity indices rose for the third-straight week.

Investors are focused on corporate earnings, which are coming in largely as expected. Revenue results are a tad better. With 13% of S&P 500 companies having reported, 66.7% have exceeded revenue projections compared to a 62% average since 2002. Analysts estimate fourth-quarter revenue will grow 2.1% compared to last year, according to Thomson Reuters I/B/E/S.

The Bank of Canada’s Business Outlook Survey revealed that businesses are mildly optimistic about the future. Manufacturing sales also came in better than expected earlier this morning.

The third Canadian data release for the week was the one that had everyone talking. Existing homes sales posted a 17.4% year-over-year drop in December – the largest drop registered since late-2010. Home prices eked out a gain, but momentum has undoubtedly decelerated over the course of the year.

Tighter government-backed insured mortgage rules and stricter lending practices have contributed to the recent housing weakness. Looking ahead, we do not expect the Canadian housing market to undergo a U.S.-style crash. Instead, prices and sales should stabilize in the months ahead, but a gradual, mediumterm adjustment remains in the cards.

At Russell, we took our research into retirement income a step further and developed a retirement portfolio that’s designed to take full advantage of the 10/30/60 Rule. We discovered that a portfolio consisting of 35% equities and 65% fixed income offers an ideal balance. It’s not too heavily weighted in equities, so volatility is relatively low. And there is enough long-term growth potential to sustain a stream of income that lasts a lifetime.

Here is how a 35% equities / 65% fixed income portfolio can perform over an investor’s lifetime: accumulating savings during their working years, generating steady growth, and providing a stream of inflation-adjusted income for 30 years beyond retirement.

Deputy Governor of the Bank of Canada, Tiff Macklem, delivered a special lecture in which he reiterated the theme that sustainable economic growth in Canada must increasingly be driven by the export and business sector and less by residential investment and consumer spending.

That transition is already underway. Housing starts have slowed from the record levels hit earlier in 2012. We do expect the pace of construction to continue to gradually trend down to more sustainable levels over the next year as homebuilders take their cue from an already cooling existing home market.

Despite what is shaping up to be a weak end to the year, export growth is set to start contributing more to growth in the year ahead. Despite continued fiscal challenges stateside, U.S. demand is expected to be more of a boon to the Canadian export sector over the next year as improving housing markets and credit conditions help U.S. households and businesses unleash some pent-up demand. Increased business borrowing also suggests that businesses are poised to do more of the heavy lifting in the year ahead.

The Shanghai Composite fell 1.8% on Friday following stronger-than-expected food inflation data, which pushed up consumer prices. We expect inflation to rise moderately in 2013.

More importantly, the country’s robust December export and import growth not only indicate China’s economy is gaining momentum, but are further evidence the global economy is on the mend.

Germany’s DAX, a big winner in 2012, stumbled as November factory orders, industrial production, exports, and imports fell short of expectations. The industrial engine of Europe suffered its steepest monthly decline in exports in more than a year.

China also suffered mid-year and, although there has been some modest improvement since then, it can hardly be said that the Middle Kingdom has regained its former poise. Still, the fourth quarter increase in manufacturing new orders marks the first gain since the second quarter of 2011, thanks to a renewed pick-up in domestic infrastructure investment. As a result, the outlook for Chinese growth is improving: HSBC projects GDP growth of 8.6 per cent in 2013, up from 7.8 per cent in 2012. For the emerging world as a whole, HSBC expects growth of 5.4 per cent in 2013, up from 4.8 per cent in 2012.

The rising tide of on-shore light oil production in the United States constitutes a game changerfor North America's oil supply balance. Anchored by the Bakken, Permian and Eagle Ford,US oil production is poised to climb 1.7 million bbl/d (27%) over the next five years to 8.1million bbl/d by 2017. The US is likely to retain its ranking as the world’s third-largest oilproducer – but will narrow the gap on Russia and Saudi Arabia.America’s light oil renaissance has also driven a wedge between WTI and Brent – a dynamicexacerbated by US oil export restrictions and one that reaches beyond pipeline expansions.We have raised our long-term WTI-Brent differential from US$2/bbl to US$7/bbl. Integratedoil companies afford cash flow insulation from these conditions, while upstream producers offer torque.

The impact of the U.S. fiscal cliff deal has been more or less positive for Canada, at least in the short term. It partially removes the veil of uncertainty that contributed to the weak pace of economic growth in the second half of 2012. And the resolution does put the U.S. on track to record a healthier pace of economic growth in the first half of 2013 which should bode well for Canada’s export sector.

The total impact of U.S. fiscal drag should shave roughly half a percentage point from Canadian real GDP growth in 2013, but a stronger profile for exports and business spending combined with a resilient domestic economy should lead Canada to a moderate pace of economic growth this year.

TD Economics released updated economic and financial forecasts this week.

The debt-to-income ratio rose to 164% in Q3, but on an annual basis, debt growth is at its slowest pace seen since 2002, and half the pace seen during the 2004-08 period.

Housing starts dropped to a 1-year low in September, consistent with the cooling seen in other areas of the housing market. Residential construction will be a weak spot in the Canadian economy going forward.

The U.S. fiscal cliff, a European recession and the resulting dampening impact on commodity prices are the biggest challenges facing the Canadian economy over the next six months. Domestic demand is also likely to be further tempered by a slowing housing market.

We assume that a compromise on the U.S. fiscal cliff will be reached – perhaps at the eleventh hour. Nonetheless, fiscal consolidation in the U.S. alone could shave up to 0.7 percentage points off Canadian economic growth through lower exports and the knock-on-effects to other areas of the economy in 2013.

As the fiscal drag in the U.S. abates and uncertainty eases, Canada is likely to gain from a recovering U.S. economy and improving financial conditions. By the second half of next year, exports and business investment are expected to ramp up. Still, a high Canadian dollar, elevated household debt and government restraint will keep the country’s overall pace of economic expansion in check.

Canadian real GDP is expected to grow at a lacklustre pace of 1.7% in 2013, before picking up to a more solid 2.5% in 2014. Inflationary pressures will likely remain subdued. Despite having a tightening bias, modest economic growth and inflation is expected to keep the Bank of Canada on the sidelines until October 2013.

The prices of most risky assets increased between early September and early December. In the advanced economies, yields on both investment grade and subinvestment grade corporate bonds fell to their lowest levels since before the 2008 financial crisis. The same was true of yields on emerging market bonds, whether issued by sovereigns or corporates, or denominated in local or international currencies. And yields on bonds backed by mortgages and other collateral fell to their lowest levels ever. Meanwhile, equity prices mostly rose during the early part of the period, although they fell back somewhat later on.

Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook. Forecasters cut their projections for 2012 and 2013 global economic growth.

To no one’s surprise the Bank of Canada left interest rates unchanged this past week, as Canadian economic growth continues to be soft, hurt by weak foreign demand. But, the Bank retained its hawkish bias.

November’s very healthy job growth would seem to support that hawkish stance by the Bank. However, some of the details in the report reveal the soft underbelly of the Canadian economy, namely a slowing goods sector.

In addition to weaker external demand, Canada faces competitiveness challenges seen clearly in Canada’s poor productivity performance in Q3. These reasons underscore why November’s healthy job gain is unlikely to be sustained in the months ahead.

• This week, we learned that the Bank of England has poached the current Governor of the Bank of Canada. While his absence will surely be felt, the imminent departure is not expected to change the course of monetary policy in Canada.

• In deciding when to change interest rates, domestic and international developments will be closely monitored. Earlier this morning, we learned that the Canadian economy grew by just 0.6% (annualized) in the third quarter. This pace represents a sharp deceleration relative to the prior quarter and the third consecutive quarter of sub-2.0% growth.

• Amid the tepid economic backdrop and the litany of downside global economic risks, the lower for longer interest rate mantra will continue in Canada until the third quarter of 2013. Once rates are lifted, the increases will occur in a gradual, step-wise manner.

Corporate profits rose 3.7% in the third quarter, following a 7.0% decline in Q2. On a year-over-year basis, profits were up 3.1%.

The gains were led by the manufacturing sector (+6.3%), which accounted for nearly a third of the total increase. However, the bounce back in manufacturing profits stemmed from the petroleum and coal industry, as plants came back online following partial shutdowns during the second quarter. In fact, profits in the manufacturing sector would have otherwise fallen during the quarter, as chemical, plastics and rubber (-11.7%), metal (-19.4%), and motor vehicle and parts (-18.9%) manufacturers all recorded double digit declines in Q3.

• Financial markets’ mood started to improve this week, with equity markets making up some lost ground and the Canadian dollar back above parity.

• Canadian data, however, shone a light on the biggest domestic risk to the economy – heavily indebted consumers – and the impact on Canadian retailers.

• Consumers can no longer be the engine of economic growth. Add high levels of cross-border shopping and limited pricing power to that modest backdrop, and it would seem Canadian retailers are getting a lump of coal in their stockings this year.

November 20, 2012
by Congressman J.Randy Forbes, Virginia's Fourth District

The term “fiscal cliff” was coined by Ben Bernanke, Chairman of the Federal Reserve, in early 2012, when he testified before Congress saying, “Under current law, on January 1st, 2013, there is going to be a massive fiscal cliff of large spending cuts and tax increases.” The phrase quickly gained popularity as a useful catch-all to describe a combination of year-end policy events including significant impending tax increases, sharp sequestration budget cuts, and the expiration of several stop-gap provisions ranging from doctor reimbursements to unemployment benefits.

Today, the term “fiscal cliff” dominates the local headlines, national news, and blogosphere. But what exactly is the fiscal cliff and how does it impact you? I have put together this primer to break down the fiscal cliff, to share facts on how these policies might impact you and your job, and to give you insight into my views on and actions to avert our nation’s most pressing and significant problem.

Investors continue to buy gold at historically high levels, but investment demand was down from particularly high levels seen during the same period in 2011. The most significant contribution to the fall in gold demand came from the drop in bar and coin investment. This was largely reflective of a lack of strong inflows in certain (notably Western) markets, rather than the emergence of any strong profit-taking activity. Demand from this category of investment was 30% weaker year-on-year at 293.9 tonnes, translating to a 32% decline in value to US$15.9 billion.

Most major equity markets were hit hard during the week as investors grew frustrated and anxious about fiscal cliff risks and as the battle between Hamas-led Palestinians in Gaza and Israel resulted in more than 1,000 rockets being fired between the two sides.

While the biggest selloff occurred on Wednesday— the S&P 500 fell 1.4% that session—markets across regions dripped lower throughout the week.

Negotiations to avoid the year-end fiscal cliff have barely begun. So far, public statements out of Washington have included no surprises; the Democratic and Republican sides are playing their predictable roles.

• Risk sentiment has soured significantly, the Canadian dollar slipped below parity and equity markets slid for a second consecutive week.

• Canadian economic growth is expected to clock in at a disappointing sub-1% pace, with most of the weakness concentrated in trade. Manufacturing sales rose 0.4% in September 2012, almost fully led by aerospace products. Excluding this industry, sales were down 0.7%. The existing home market also remained a sore spot with sales down 0.1% in October, a seventh decline in ten months.

• Looking forward, economic growth should pick up to a more healthy 2.0% annualized pace in the final quarter of the year, supported by improving U.S. demand and Canadian consumer spending.

• The advent of shale gas production in North America has radically changed the game for natural gas markets over the past few years. First and foremost, it has resulted in far lower natural gas prices than would otherwise have been the case. As the world’s third largest producer, this has both positive and negative implications for Canada.

• On the negative side, the distance from major North American markets puts Canadian natural gas production at a competitive disadvantage to U.S. shale plays. The result has been lower imports of gas from Canada, and declining levels of production and reduced revenues from existing output.

• On the positive side, lower prices are a positive for consumers of natural gas; be they households, businesses or industry. Moreover, as lower prices induce switching from more polluting fuels like coal, lower greenhouse gas emissions are another benefit.

• A key difference for Canada is the expected growth in demand for natural gas from the industrial sector. Expansion of the oil sands is expected to be a major driver of gas demand going forward. With Canada’s traditional export market now able to meet far more of its own natural gas needs, Canada needs to find new customers at home and abroad to extract the greatest value for our gas resources.

• Our assessment of U.S. long-term financial returns, based on economic fundamentals, suggests that a diversified portfolio should deliver an average annual return of between 4.5% and 6.5% over the next decade.

• Cash is expected to provide an average annual return of 2.25%. Bonds will likely suffer capital losses, as interest rates rise from their current lows, but should return 2.5% for Treasuries, 5.5% for corporate bonds, and 4.5% for municipal bonds. A balanced fixed-income portfolio is expected to return 3.75%, on an average annual basis.

• Equity markets across the U.S. and other developed economies will likely return, on average, about 7.0%. Some exposure to emerging markets could boost equity returns, but the additional return would come at a price of an increased risk profile.

Armed with more modest economic growth forecasts than previously envisioned, the government now anticipates a deficit of $26 billion (1.4% of GDP) in fiscal 2012-13. This represents a $5 billion miss vis-à-vis the 2012 budget estimate. The weaker momentum trickles through the entire fiscal plan. The return to surplus is now pushed out to 2016-17, one year later than the original deficit reduction timetable. For markets, investors and credit rating agencies, it is the medium-term plan that garners the most amount of attention. Therefore, consensus on today’s release should be that it is inherently difficult to restore fiscal health in this modest economic climate. That being said, the government is sitting on small deficits and it has a multi-year road map towards surplus.

»» Equities stumbled and safe-haven bonds rallied as the war over taxes and spending cuts began in Washington and as Europe’s challenges bubbled back up to the surface. Greece re-appeared on the radar screen.

»» It’s time to stop cheering or bemoaning the U.S. election results. The fiscal cliff is more important for financial markets and economies across regions. (page 3)

The votes have (mostly) been counted and years of campaigning came to a close this week. For the last several months, economists and market watchers alike have had a hard time focusing on anything but the election. Well, now that it is done, markets can focus on bigger things – like the looming fiscal cliff.

In fact, for all the hoopla, the election leaves the state of U.S. politics pretty much where it was before the election. The President is still Barack Obama; the House is still run by Republicans under John Boehner, and the Senate is still run by Democrats under Harry Reid. These three men will now have to forge a path to compromise that avoids plunging the U.S. back into recession, but also takes steps to put U.S. deficits and debt on a sustainable path.

The Towers Watson Pension Index has decreased slightly in the third quarter. The positive asset returns were offset by an increase in pension liabilities due to a decrease in the liability discount rate. The net effect on our benchmark plan was a decrease of 0.3% in the Towers Watson Pension Index (from 56.3 to 56.1) for the quarter.

Murphy’s Law says that anything that can go wrong will go wrong. First, the economy unexpectedly contracted by 0.1% in August, representing the first decline in six months. Second, consumer and business insolvencies rose by 5.4% and 5.1%, respectively in July. Third, job creation came to a standstill in October, well short of expectations.

Behind the string of negatives, there were also some positive developments. China’s PMI increased, which helped boost morale surrounding the health of the global recovery. Canada’s export-based economy stands to benefit from this development.

Canada is expected to emerge from this soft patch in the fourth quarter. However, the near-term domestic outlook remains modest at best. Due to the many global headwinds present, the trajectory should stay bumpy over the near-term.

A majority of active funds underperformed their respective benchmarks across all asset classes studied in the Mid-Year 2012 SPIVA Australia Scorecard (see Exhibit 1). With the exception of the Australian equity small-cap category, at least 70% of active retail funds underperformed the benchmark over the past year. The same is true for the three-year period.

Over the past five years, approximately 69% of active retail Australian equity general funds underperformed the S&P/ASX 200 Accumulation index. The portion of underperforming funds increased to an even larger majority across the one- and three-year time periods, with at least 72% of active Australian equity funds failing to beat the index.

• If we compare the current standing of corporate balance sheets in the first half of 2012 to what they looked like some 20 years ago, the picture has brightened significantly.

• Financial ratios have improved markedly over the last two decades, including a decline in debt-to-equity and improved liquidity.

• Improvements have been driven by solid growth in assets, led by strong profitability. In addition, over the past twenty years, non-financial corporations have elected to finance investments more through internally generated cash and issuing stocks than has historically been the case.

• Over the last 20 years there has been a growing preference of businesses to build financial assets. In particular, cash was the fasted growing asset during that time. This trend has accelerated since the 2007-2008 financial crisis, as Canadian companies focus on risk management.

• Going forward, a softer profit environment will likely keep asset growth more modest. We are likely to continue to see a heightened preference for cash over the next 6-9 months. However, over the medium-to-longer term we anticipate that non-financial corporations will start to invest less in cash and more in fixed capital. Debt will grow as a more important source of funding those investments.

According to the report, in the third quarter of 2012, diversified pooled fund managers posted a median return of 3.4% before management fees. The median year-to-date return obtained was 6.7%.

"After a difficult second quarter, pension funds are benefitting from the recent rally of the stock markets to post profits that surpassed the expected returns for an entire year in accordance with the actuarial return assumptions commonly used by pension funds. The median return of 6.7% obtained in the first nine months of the year exceeds, after fees, the actuarial return assumption of 5.5% to 6.0% per year for the average pension fund."

• Our assessment of financial returns based on economic fundamentals suggests that diversified portfolios will likely deliver an average annual return between 4.00% and 6.00% over the next decade.

• Cash will likely provide an average annual return of 2.00%. Meanwhile, bonds are likely to return less than their coupon on a total return basis due to capital losses on longer-term bonds created by rising interest rates. The DEX Universe Bond index is projected to return roughly 3.00% on an average annual basis.

• Equity markets among major developed economies will likely return 7.00% annually, on average. However, this assumption does not include any allowance for higher price-to-earnings multiples. Moreover, exposure to emerging markets could boost equity returns; however, we must caution that these investments do carry materially greater risks.

Most central banks currently view their country’s economic state as unacceptable and have acted to accelerate the economic recovery. However, there are many obstacles facing developed countries that will force central banks to continue their unconventional monetary policies. In the US, the Fed is motivated by the ailing labour and housing markets and would like unemployment and inflation to be closer to normalised levels. The market expects partial normalisation to begin around mid to late 2014, though if Japan were to be used as a guide, a prolonged period of subpar performance may lie in store. BoJ’s policies have set a precedent in unconventional monetary policy duration as they are now in their 12th year. The ECB is caught between regional recession coupled with fiscal austerity and a prolonged period of intervention before growth and price stability are restored to a consistent path.

The backdrop of negative real yields, a slow recovery and a likely continuation of expansionary monetary policies – with all the risks these present – provides further support to the long-term strategic investment case for gold.

The attributes which make bonds an attractive long-term holding have not changed, i.e., providing income and diversification. While achieving 10% annualized returns for the next 30 years from fixed income seems elusive at best, fixed income remains a core component to counter equity market volatility, which is the main contributor to portfolio volatility. For example, as highlighted in Figure 2, taking a balanced portfolio with 60% allocation to Canadian and global equities and 40% allocation to fixed income, we find more than 90% of the volatility that the portfolio experienced was attributable to equities.

Equities, by far, remain the largest contributor to risk in one’s portfolio, and fixed income will continue to be a viable source to counter that volatility. Therefore, a dramatic asset allocation shift in response to current low yields should take into consideration the implication on total portfolio risk.

The annualized return for the S&P 500 index for the 20 years ending December, 2010, was 9.10% per annum (pa). What annualized return did the average equity mutual fund holder achieve?

The answer is potentially surprising. We will assume the reader also knows to deduct average mutual fund costs of around 2.0%, so a reasonable guess would be a return of 7.1% pa for the 20-year period. The actual answer is the average mutual fund investor earned a return of 3.80% pa, which was only 1.20% pa above inflation. This answer ought to shock us. It is an almost incredible, needless destruction of value. It turns out that retail investors in mutual funds aren't very good at 'Buy and Hold' and instead chase higher returns with tragic results. The story is essentially the same for institutional investors, although the scale of value destruction is smaller.

The wrong medicine is being applied to America’s economy. Having misdiagnosed the ailment, policymakers have prescribed untested experimental medicine with potentially grave side effects.

The patient is the American consumer – the world’s biggest by far, but now in the throes of the worst funk since the Great Depression. Recent data on consumer spending in the United States have been terrible. Growth in inflation-adjusted US personal consumption expenditures has just been revised down to 1.5% in the second quarter of 2012, and appears to be on track for a similarly anemic increase in the third quarter.

Recent releases of the Case-Shiller Home Price Indices1 (HPI) seem to indicate that the U.S.housing market is beginning to show signs of recovery. In the second quarter of 2012, the20-city composite index, representing 20 major metropolitan statistical areas or MSAs, hasshown average increases of 1.5%, 2.3%, and 2.5% month-over-month, its strongest consecutive gain since the market collapse in 2006. Chart 1 below exhibits the Case-Shiller HPI since January 2000.

September 21, 2012
by The Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance and Investment September 20, 2012

There is no doubt that electronic trading has tremendous value to offer, at times enhancing the smooth functioning of the stock market and increasing competition, thus driving down the spread that the average investor has to pay to buy or sell a stock. HFT has been so successful that it has taken over the stock market, now accounting for between 50% - 70% of equity market volume on any given day. Fortunes have been made, with estimated annual profits exceeding $21 billion2 at its peak, and estimates varying but still in the billions of dollars today.

What we must be concerned with is whether the pendulum has swung too far, and whether the nearly unregulated activities of anywhere from 50%-70% of stock market volume should be permitted to continue down this path. For the proponents of HFT to make the case that the market is functioning well, or that only incremental reforms are needed rather than wholesale changes, they must make the case unequivocally that the market satisfies the aforementioned characteristics of tightening spreads, decreasing volatility and is a more efficient and low-cost mechanism for price discovery and capital formation today than at any time in the past, and that proposed reforms are not even worth trying.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

*Please note that this article focuses on diversification within a stock portfolio, however the concepts apply to one’s overall portfolio, as well. An investor’s broad portfolio should also diversify among different asset classes (stocks, bonds, real estate, etc.), styles (large-cap, growth, short-term, etc.), and countries. We advise investors to consult a financial professional to develop a customized and detailed asset allocation plan.

The concept of diversification has been around for a very long time, as I’m sure everyone has heard the age-old adage, “don’t put all your eggs into one basket.” But, it wasn’t seriously applied to the investment discipline until the 1950s when Harry Markowitz laid the groundwork for modern portfolio theory. By choosing securities that have minimal or no relationship with each other, he proved that investors could reduce their overall risk.

First, let’s start with the two alternatives: a concentrated portfolio or no portfolio (all in cash – or under the mattress). According to Warren Buffett, “wide diversification is only required when investors do not understand what they are doing.” While it is very possible to outperform the broader market averages over long periods of time holding only a few assets (just look at Mr. Buffett’s lifetime performance record), not everyone has the superior skill set that Mr. Buffett possesses. For the rest of us, diversification seems to be our best strategy.

Because of the financial collapse and the subsequent economic crisis, GDP declined significantly beginning in 2007. GDP would have dropped even more without massive spending by the federal government. The sum of actual GDP loss and GDP loss avoided because of emergency spending and actions by the Federal Reserve Board are estimated to total more than $12.8 trillion for the period 2008-2018.

In October 2009, the broadest measure of unemployment (U-6 rate) peaked at 17.5 percent, representing 26.9 million Americans. As of July 2012, the U-6 rate remains very high at 15 percent, representing 23.1 million Americans.

Real household wealth declined from $74 trillion in July 2007 to $55 trillion in January 2009, representing $19 trillion of evaporated wealth. Although household wealth has regained some ground, the decline is still very substantial and has grave distributional effects, including permanent, lifetime losses suffered by many Americans.

(Please be patient, the report takes a minute to load due to it's format.)

If I were an individual investor, I would do this: Balance your asset mix according to your age. Own more stocks if you are young, but more bonds if you are in your 60s, like myself. If you choose an investment advisor, a mutual fund, or an ETF, make sure that your fees are minimized. After all, if overall returns average 3–4% annually how can you possibly afford to give 100 basis points of it back? You cannot. And be careful. The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities price – both stocks and bonds.

Evidence increasingly shows that a “crime” of extensive underperformance has been committed in mutual funds, pension funds, and endowments. In a pattern reminiscent of Agatha Christie’s famous novel Murder on the Orient Express, an investigation leads to a surprising, if inevitable, conclusion: The usual suspects—investment managers, fund executives, investment consultants, and investment committees—are all guilty.

The central banks of the advanced market economies (AME’s) 3 have embarked upon one of the greatest economic experiments of all time ‐ ultra easy monetary policy. In the aftermath of the economic and financial crisis which began in the summer of 2007, they lowered policy rates effectively to the zero lower bound (ZLB). In addition, they took various actions which not only caused their balance sheets to swell enormously, but also increased the riskiness of the assets they chose to purchase. Their actions also had the effect of putting downward pressure on their exchange rates against the currencies of Emerging Market Economies (EME’s). Since virtually all EME’s tended to resist this pressure4, their foreign exchange reserves rose to record levels, helping to lower long term rates in AME’s as well. Moreover, domestic monetary conditions in the EMEs were eased as well. The size and global scope of these discretionary policies makes them historically unprecedented. Even during the Great Depression of the 1930’s, policy rates and longer term rates in the most affected countries (like the US) were never reduced to such low levels.

Editor's Note: The paper's author, William R. White, is a world renown Canadian economist. Beginning in 1972, Mr. White spent 22 years at the Bank of Canada eventually becoming the Bank's Chief of the Research Department. He then went on to be the Deputy Governor of the Bank of Canada in 1988.

In 1994, he joined the Bank for International Settlements as Manager in the Monetary and Economic Department. From May 1995 to June 2008, he served as its Economic Adviser and Head of the Monetary and Economic Department.He predicted the financial crisis of 2007–2010 before the 2007's subprime meltdown. He was one of the critics of Alan Greenspan's theory of the role of Monetary Policy as early as 1996. He challenged the former Federal Reserve chairman's view that central bankers can't effectively slow the causes of asset bubbles. On Aug. 28, 2003, White made his argument directly to Greenspan, at the Kansas City Fed's annual meeting in Jackson Hole, Wyoming. White recommended to "raise interest rates when credit expands too fast and force banks to build up cash cushions in fat times to use in lean years.". Greenspan was unconvinced that this would work and said: "there has never been an instance, of which I'm aware, that leaning against the wind was successfully done" - Wikipedia

Firstly, we demonstrate that many lower-income and middle-income workers who save for retirement should not do so in tax-deferred accounts because if they do, they will pay taxes and government benefit clawbacks on withdrawals in retirement at rates that are significantly higher than the refundable rates that apply to contributions. Over a lifetime, these workers would be much better off financially to save for retirement in existing Tax-Free Savings Accounts (TFSAs). Therefore, we propose that tax rules be amended to allow tax-prepaid saving within PRPPs.

For the middle-income group, the “lost decade” of the 2000s has been even worse for wealth loss than for income loss. The median income of the middle-income tier fell 5%, but median wealth (assets minus debt) declined by 28%, to $93,150 from $129,582.30. During this period, the median wealth of the upper-income tier was essentially unchanged—it rose by 1%, to $574,788 from $569,905. Meantime, the wealth of the lower-income tier plunged by 45%, albeit from a much smaller base, to $10,151 from $18,421.

From 2003 to 2007, U.S. households increased their debt levelsby 10.2% per year. Debt growth slowed considerably in 2008 as the recession began and has decreased by 2.8% per year from 2009 to the firstquarter of 2012. Recent data from the Quarterly Report on Household Debt and Credit by the Federal Reserve Bank of New York is summarized in the chart below. After U.S. household debt peakedin the fourth quarter of 2008 at approximately $12.7 trillion, the trend has reversed with a decline to approximately $11.4 trillion at the end of the first quarter of 2012.

Editor's Note: The decline in consumer debt levels is supportive of our view that a long-term shift from a Credit Expansion Phase to Credit Contraction Phase began in 2008. We feel this shift in the credit cycle is an important long-term factor investors need to understand as it reverses many accepted long-term 'tail-winds' for economies and capital markets.

Our new research suggests an alternative explanation; private sector issues with creditor seniority. An increasing share of total debt that is held by public creditors (ECB, EFSF/ESM, and IMF, etc) and the total is rising due to the ongoing rescue operations. Under current rules, these public creditors jump to the head of the queue if things go wrong. They have senior status in case of insolvency. The remaining public debt is thus a junior tranche. As such, it requires a higher marginal interest rate.

Retiring babyboomers are driving a shift from retirement fund accumulation to decumulation, a phase in which they must balance present financial needs against longevity risk.

For Canadians with pre-retirement income in the $40,000-$50,000 range or higher, deciding how and when to access private savings will significantly affect the lifestyle that can be achieved in retirement. The process people use to access private savings must balance the need for income in the present with the need for income in the future. The decisions made regarding this decumulation – including those about whether to annuitize, and how much and in what forms – will determine the extent to which a retiree is exposed to liquidity risk or longevity risk (as well as inflation risk, which can be related to both).

Many boomers in the survey felt they had come up short of what they expected to have saved by this stage in their life, with 45 per cent having saved less than $100,000.

The good news for boomers is that their late 50s and early 60s can be good years for building savings, particularly if cash flow improves as debts, such as a mortgage, are paid off. Those who plan to continue working in retirement may be able to leave their savings untouched for a number of years, using the income from their employment to replace what they would normally draw from their retirement savings.

More than a third of investors said they've shied away from risky investments over the last six months, according to a new survey released by TD Ameritrade.That's 12 percent more than the same survey issued three months ago, and most of the blame lies in a sluggish economy––both in the U.S. and overseas, says a firm representative.

We first show that liquidity, as measured by stock turnover or trading volume, is an economically significant investment style that is distinct from traditional investment styles such as size, value/growth, and momentum. We then introduce and examine the performance of several portfolio strategies, including a Volume Weighted Strategy, an Earnings Weighted Strategy, an Earnings-Based Liquidity Strategy, and a Market Cap-Based Liquidity Strategy. Our backtest research shows that the Earnings-Based Liquidity Strategy offers the highest return and the best risk-return tradeoff, while the Volume Weighted Strategy does the worst. The superior performance of the liquidity strategies are due to equilibrium, macro, and micro reasons. In equilibrium, liquid stocks sell at a liquidity premium and illiquid stocks sell at a liquidity discount. Investing in less liquid stocks thus pays. Second, at the macro level, the growing level of financialization of assets in the world makes today’s less liquid securities increasingly more liquid over time. Finally, at the micro level, the strategy avoids, or invests less, in popular, heavily traded glamour stocks and favors out-of-favor stocks, both of which tend to revert to more normal trading volume over time.

Gold demand for the second quarter of 2012 measured 990 tonnes, 7% below year-earlier levels. Weaker demand from jewellery, investment and technology sectors was offset to some extent by a surge in buying by the official sector. The supply of gold declined 6% year-on-year, mainly due to lower levels of recycling. The gold price averaged US$1,609.49/oz during the quarter, 7% above the average the Q1 2011 price; consequently there was only a marginal 1% year-on-year decline in the value of gold demand to US$51.2bn. Looking at the first half of 2012, gold demand of 2,090.8 tonnes was 5% down on the previous year and 14% above the five-year H1 average of 1,828.7 tonnes.

As a general principle, we expect that a Dealer Member or individual adviser will only move a client from a commission-based account to a fee-based account (or vice-versa) when such a change in service offerings is demonstrably beneficial to the client. The absence of any demonstrable benefit, depending on the facts and circumstances of the case, may give rise to regulatory scrutiny and, in more extreme cases, disciplinary action.

In light of the foregoing, best practices suggest that Dealer Members should document the specific factors that establish the suitability of a new commission- or fee-based account at the time that it is opened, and where the client is being switched from one account type to another, the factors that led to the transfer.

Central bankers and government officials continue to play a dominant role in shaping global financial market returns. No doubt some investors are nervous about their ability to deliver or are troubled by their influence. Right or wrong, markets seem willing to take policymakers at their word—at least for now.

With European banks and sovereigns in the spotlight again, investors have been wondering about Canadian bank exposures to this troubled region. The issues plaguing Europe could be with us for some time, creating the potential for financial market dislocations, elevated counter-party risks, and global bank funding concerns. The most recent bout of risk aversion has contributed to a 10% decline in the S&P/TSX Bank Index from its recent high in March of this year. A stabilization of macro economic conditions and the debt crisis in Europe could lead Canadian banks to be re-rated to higher price-to-earnings multiples. Historically, the banks have traded in the 11-13x P/E range, while the current average is under 10x on 2013 earnings. In a recessionary scenario for Canada, earnings estimates could fall 10%-15%. Even within the context of this kind of decline, the earnings multiples paid at current prices would be modest when compared to historical averages.

July 24, 2012
by Emory University, Duke University, National Bureau of Economic Research

We provide new insights into earnings quality from a survey of 169 CFOs of public companies and indepth interviews of 12 CFOs and two standard setters. Our key findings include (i) high-quality earnings are sustainable and are backed by actual cash flows; they also reflect consistent reporting choices over time and avoid long-term estimates; (ii) about 50% of earnings quality is driven by innate factors; (iii) about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) CFOs believe that earnings manipulation is hard to unravel from the outside but suggest a number of red flags to identify managed earnings; and (v) CFOs disagree with the direction the FASB is headed on a number of issues including the sheer number of promulgated rules, the top-down approach to rule making, the curtailed reporting discretion, the de-emphasis of the matching principle, and the over-emphasis on fair value accounting.

Gold prices declined in most currencies during the second quarter with the exception of the euro, Swiss franc and Indian rupee, in part due to a strong US dollar. Despite a 3.8% decline in Q2 to US$1,598.50/oz on the London PM fix, gold was up 4.4% during the first half of the year. Volatility remained elevated amidst a busy event-risk period. However, gold generally outperformed risk assets.

Last time, we showed that a working couple with two children and household earnings of $100,000 could maintain their lifestyle in retirement with income of just $51,000 a year (51%) from CPP, OAS and RRSPs. For the sake of simplicity, this calculation was performed on a pre-tax basis. In our latest analysis, presented below, we have reflected the impact of income tax and the results are even more startling. The target retirement income for this particular couple reduces from 51% to only 43%. (Later, we will see how this target income varies based on one’s circumstances.)

Figure 1 illustrates how retirement income equal to 43% of final pay can provide the same disposable income as before retirement. Not only do seniors finally escape a variety of pre-retirement expenditures, they also benefit from an income tax system that confers several advantages, including an age credit (starting at 65), a pension income credit, and the ability to split pension income or transfer credits between spouses.

Canadians have a reputation for modesty. Bragging is not supposed to be our national tendency — except when it comes to banking. Canadian politicians and bankers praise Canada’s banking system so relentlessly that it has created a virtual echo chamber of self-congratulation. This endless mantra extolling Canadian banking is a dangerous hubris in light of the prevalence of global financial turmoil in the neoliberal era. Who might have imagined even a few years prior to 2008 that American regulators and financial institutions could have gone so disastrously wrong? Who dreamt that so soon after the 2008 financial crisis European banks would be facing such ominous threats?

Editor's Note:Where the C.D. Howe Institute is considered to be a 'Right-Wing' think-tank, the CCPA is often viewed as their 'Left-Wing' counter part. Both have valid opinions and both offer investors insightful discussions. Good investors always try to keep an open mind.

Amid volatile trading and as an immense number of European headlines streamed across the globe, equity markets rallied for the week. Much of the activity was driven by hedge funds, with individual investors and large institutions standing on the sidelines ahead of the Greek election on June 17. Regardless of the election winner, and assuming a government can be formed within days, the market anticipates the Greek bailout will be renegotiated, and central bankers stand ready to act if necessary.

Many investors still approach the fixed income marketplace with a goal of capital preservation and income. But fixed income investments may also be utilized as an effective tool for managing overall portfolio volatility. The differences in fixed income market performance relative to equities create that opportunity.

Generally speaking, holding a greater percentage of fixed income may help you strike the right balance between risk and return.

An actuary will say we can retire when we have saved enough. That is true for an individual and, eventually, it will also be true for the country because we cannot pass the cost of our pension programs onto a future generation forever. By knowing how much Canadians are prepared to save and what level of retirement income they hope to attain, the actuary can calculate the age at which we can collectively afford to retire.

Equity markets rallied and safe-haven government bonds sold off for the week on numerous headlines about potential forthcoming actions to stabilize the European crisis. (Haven’t we seen this movie before?) Wednesday’s trading session set the tone. U.S. and European markets jumped more than 2% on news policymakers may be preparing to inject capital into Spain’s troubled banking system—one of the main distress areas of late.

This simply table summarizes the investment returns for various bond and stock market indices. The returns are displayed for the one month, quarter, year-to-date and full one year time periods. The table also contains the data for Canada's Consumer Price Index (CPI) and Morneau Shepell Benchmark Portfolios.

Investors’ natural instincts are their worst enemy when it comes to investing. Invariably, investors let their emotions dictate their actions. They feel more confident when the market is high, and then lose their nerve and sell when the market is low. The impact of this market timing behaviour is illustrated in a study conducted by Dalbar, a leading financial services market research firm that investigates how much mutual fund investors’ actually earned on their money. The figure below shows data from a Dalbar study covering the 20 year period ending in 2010:

Operating revenue for Canada’s securities industry edged higher in 2011 totaling $16 billion, a 2% increase over 2010. Industry profitability, however, was adversely impacted by market conditions that continued to weaken throughout the year and mounting cost pressures. As a result, industry operating profit fell 11% on the year to $4.3 billion and down 29% compared to 2009 levels. Deteriorating market conditions in late 2011 dealt a blow to capital markets operations and proved particularly damaging to institutional firms heavily reliant on their trading businesses. Against the headwind, retail wealth management delivered another year of solid performance. Mutual fund commission, net interest and fee revenues all posted double-digit growth in 2011. ROE for the industry came to 13.3%, about 1%-point lower than last year.

Russell recently partnered with the researchers at Harris/Decima to speak with more than two thousand Canadian investors. As a leading expert in retirement planning, we wanted to deepen our understanding of how Canadians are preparing for retirement, how current retirees are faring, and what we can do to improve the financial health of Canadians.

Despite the recent economic downturn, we discovered that many pre-retirees have remained steadfast in their retirement plans, and that most retirees continue to feel financially secure. However, we also uncovered critical misperceptions that could prevent many Canadians from reaching their best potential financial health. Here is a summary of our findings.

As found in last year’s survey, mortgage consumers use a variety of resources, both on-line and off-line, when looking for information about mortgage features and options. Overall, about seven in ten (71%) consumers reported using online sources, up slightly from 65% in 2011. In addition, about one in three (31%, up from 22% last year) relied solely on the Internet to gather mortgage-related information.

Interest rates dominated among topics searched on the Internet (86%) followed by mortgage options (73%). Other items sought included mortgage calculators and general information about mortgages. Generally, the mortgage-related information and tools found on the Internet were seen to be useful, with usefulness ratings above 80%. Of consumers going online, 71% used a mortgage calculator.

As at March 31, 2012, the managers who contribute to the Univers, manage assets totaling approximately $470 billion, including pension fund assets of some $230 billion. Rates of return are calculated before deducting management fees and are in Canadian dollars. (% = Percentage return for the period; R = Fund's performance ranking within the group.)

By 2029, Old Age Security (OAS) pension will not become payable until age 67. After nearly half a century of steady improvements in government retirement programs, this is the first significant take-away that affects middle-income Canadians. It may not be the last. For the last four decades, demographics and capital markets have worked in our favour, enabling us to enjoy ever-longer periods of retirement. That era appears to be coming to an end. The change to the OAS retirement age is not the cause, it is a symptom.

Canada’s retirement situation in recent years has been a case of the glass being nine‑tenths full but described as one‑tenth empty. In spite of sub‑optimal levels of coverage in pension plans and RRSPs, Canada’s retirees have been doing well for the most part. Poverty rates among seniors are extremely low (see sidebar) and one way or another, most people in their early sixties have found ways to retire with at least adequate retirement income; a majority of them have the same discretionary consumption as when they were working if not more.

We need to change course and acknowledge that the current path of shrinking energy options won’t support the energy needs and economic growth required to ensure a better future for all Americans. We must not single out energy sources in order to promote one source of energy over another. We must abandon the energy rhetoric that pits one resource against another. We need all of our resources—oil and natural gas, coal, nuclear, wind, solar, biofuels and more. Only through smart, realistic deployment of all of America’s energy assets can we realize our goal of keeping this country energy secure.

It is time to take advantage of the many opportunities we have to determine our energy future, but to do so wehave to have an honest conversation about our currentenergy needs.

To be consistent with the investor focus of the work, fifteen of the 23 questions were clearly related to investment. An additional five questions related to financial planning, while three questions focused on borrowing. It should be clear that the focus of these questions is not financial capability, but rather a higher level of knowledge that one might expect from a well-informed citizen.

Overall, people correctly answer 11.5 out of 23 questions on the survey (50%). If we consider 60% correct as a notional “passing grade”, then only 3 out of 10 Ontarians (29%) would be viewed as passing. Half of Ontarians answer fewer than half the questions correctly.

The World Gold Council's Gold Demand Trends (GDT) is the leading industry resource for data and opinion on world-wide gold demand. Our quarterly publication examines demand trends by sector and geography. The most recent review of the first quarter of 2012 comprises four sections;

Overview - Summary of the factors driving gold demand in Q1 2012, together with forward looking views and opinions on the dynamics and trends in the gold market at a regional and sector level.

Focus report - Turkey - A review of this key gold market, its history and background, recent developments and future prospects.

This table was updated in May 2012 and reports data available at that time. Data are taken from the International Monetary Fund's International Financial Statistics (IFS), May 2012 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of March 2012 for most countries.

The table does not list all gold holders: countries which have not reported their gold holdings to the IMF in the last six months are not included, while other countries are known to hold gold but they do not report their holdings publicly. Where the WGC knows of movements that are not reported to the IMF or misprints, changes have been made.

The global "wall" of nonfinancial corporate debt maturities coming due from 2012 to 2016 is not new to market observers. Less discussed is the incremental financing that corporate debt issuers will need over this period to fund capital expenditure and working capital growth. Standard & Poor's Ratings Services estimates the total amount of refinancing and new money requirements over the next five years at between $43 trillion and $46 trillion. This demand for funds will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds. These factors, amid the current eurozone crisis, a soft U.S. economic recovery following the Great Recession, and the prospect of slowing Chinese growth, raise the downside risk of a perfect storm for credit markets, in our view.

Rebalancing is one of the important keys for effective risk management. According to a study by Ibbotson Associates, if an investor had 60% in stocks and 40% in bonds, and over the past 25 years rebalanced this mix at least annually, they would have reduced their risk by 25%. Despite the potential rewards, some investors may ignore rebalancing, primarily due to their uncertainty regarding this relatively simple procedure. In light of these concerns, investors may find it helpful to consider the following factors:

More important than what one earns in retirement is what one needs to earn in retirement—and that need may only be addressed once expenses are fully understood. It’s absolutely critical to have enough income to cover the Essentials of retirement, such as food, shelter, and transportation. And virtually all retirees also want to have enough income to cover the Lifestyle expenses that make retirement enjoyable, such as travel and dining out.

Our analysis shows that, on average, a little more than 50% of household income in retirement comes from government transfers, such as the Canada Pension Plan and Old Age Security. However, these transfers are generally not sufficient to cover the Essentials of retirement—less than 70% coverage for the average retiree, and as little as 39% for higher-income retirees.

However, North American equities subsequently lost ground on disappointing European manufacturing and services activity and lackluster U.S. employment data (see page 3). U.S. small-capitalization stocks were among the biggest losers of the week. European equities also performed poorly and were dragged down by bank stocks.

Despite the sell-off, equity trading was generally quiet—not surprising since it was a holidayshortened week for parts of Asia and Europe. Institutional investors mainly stood on the sidelines again. However, selling and hedge-fund shorting picked up on Friday in the U.S.

When you hear a news story about the rise in the number of consumer bankruptcies you cannot help but wonder “could this be me?” Well, it could be. The typical person that we see is just like the average Canadian. They are hard working individuals trying to provide for their families that (for various reasons) end up in financial ruin.

As required by law, we gather a significant amount of information about each debtor who files with us. We know their income, family size, age, gender, assets, and debts. Hoyes, Michalos & Associates examined 8,000 insolvency filings from debtors we assisted over the two year period from 2009 to 2010. Our analysis reveals that the average bankrupt looks very much like the average Canadian.

Using data back to 1956, we find that a simple trading rule to own stocks in the November through April period and switching into bonds in the remaining months yielded an annual return of 13.5%. This compares with a return of 9.2% for a buy-and-hold strategy for stocks and 7.7% for bonds. Furthermore, the beat rate of this switching strategy outperforms a longonly TSX strategy in 35 of the 55 years under study.

For investors constrained to equities, we also found a simple and effective trading rule at the sector level. Holding cyclicals in the November through April period and defensives in the remaining months generated annual excess returns of over 300 basis points with a success rate of 65% over the past 32 years.

We knew that as early as 2008 the federal government had made provisions to buy insured mortgage pools from Canada’s banks in order to keep credit flowing during recessionary times. The government was careful to call it a “liquidity support”, not a “bailout” but, as this report reveals, government support for the country’s biggest banks was far more generous than the official line would suggest. Support spanned the course of two years and Canada’s banks turned not only to the Canadian federal government and the Bank of Canada for help during this protracted period, they also took advantage of American bailout programs.

This paper uses data from the RAND American Life Panel to examine potential explanations for the gender gap in financial literacy including the role of household marital specialization and division of labor among couples. We found that women perform almost 0.7 standard deviations lower than men on our financial literacy index, and the difference is highly significant. We then examined a number of potential factors affecting the observed financial literacy gap. We found that demographic characteristics had a limited effect on the financial literacy gap, whereas controlling for socio-demographic characteristics, current and past marital status reduced the observed gap by around 25%.

We may be in the final innings of what has been a tremendous three-decade run for debt markets. Investors have benefited from the persistent decline in yields, making fixed income amongst the top performing asset classes over this time frame, as shown in Figure 1. However, the current low yields should not panic bond investors. Specifically, fixed income investors need to keep the following in mind:

This brief commentary summarises gold’s price performance in various currencies, its volatility statistics and correlation to other assets in the quarter. It provides context to the investment statistics files published at the end of each quarter.

The primary macroeconomic events that shaped Q1 2012 for gold were broad-based US economic data strength, China slowdown concerns, ECB (European Central Bank) bank loans and future European bailout potential. In an eventful quarter for the global economy that saw increased volatility in capital markets, gold finished the quarter materially higher despite a number of headwinds.

This table was updated in April 2012 and reports data available at that time. Data are taken from the International Monetary Fund's International Financial Statistics (IFS), April 2012 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of February 2012 for most countries, January 2012 or earlier for late reporters. The table does not list all gold holders: countries which have not reported their gold holdings to the IMF in the last six months are not included, while other countries are known to hold gold but they do not report their holdings publicly. Where the WGC knows of movements that are not reported to the IMF or misprints, changes have been made.

Most retirees have reached the stage where they have accumulated all of their lifetimesavings. Likely, they will have no further contributions to offset withdrawals or market losses.Faced with ongoing spending needs as well as uncertain returns, inflation, and longevity,retirees are seeking investment advice that is tuned to their needs. They don’t want a typicalaccumulation strategy cloaked in a retirement costume.

Home values, now back to 2003 levels, combined with historically low financing rates are fueling homes sales, both existing and new, even while homes values continue to decline due to high levels of foreclosure re-sales, which set a new record in February. January existing home sales were very strong, while February slowed somewhat but still were quite strong when viewed on an annual basis (up almost 9%). February pending home sales were up a similar amount on a year-over-year basis, February new home sales were up 11% from the prior year, and both housing starts and permits were up 34% from year-ago levels.

Our view for 2012 has been that a strong rally in the early part of the year could power to new highs through Q1 but would be at risk of a setback (anything stretching from a mild dip to a sizeable correction) in the late-Q1 to mid-Q2 period before a more sustainable rebound materializes in the second half of the year. Now that positioning and momentum indicators are no longer as positive as they were a couple of months ago and cyclical growth indicators are at risk of faltering, it is a good time to reassess the market landscape.

Investment in commodities became a common part of a large investor portfolio allocation, which coincides with a significant increase of assets under management of commodity indexes. From less than $10 billion around the end of the last century, commodity assets under management reached a record high of $450 billion in April 2011 (Institute of International Finance 2011). Consequently, the volumes of exchange-traded derivatives on commodity markets are now 20 to 30 times greater than physical production (Silvennoinen and Thorp 2010). Similarly, financial investors, which accounted for less than 25% of all market participants in the 1990s, now represent more than 85%, in some extreme occurrences, of all commodity futures market participants (Masters 2008).

Our survey allows us to assess in detail, not only how much ETFs are being used, but also for what purposes. Exhibit 4 shows that nearly 70% of respondents use ETFs frequently for achieving broad market exposure. Around 50% of respondents frequently use ETFs for buy-and-hold investments (56.6%), short-term (dynamic) investments (54.9%), specific sub-segment exposure (52.0%) or tactical bets (50.3%). Compared to previous surveys, we find that there is an increasing demand for short-term dynamic strategies and sub-segment exposure; though long-term buy and hold investment for the broad market exposure is still the dominant reason for using ETFs.

The answers lie in the data. In 1980, official estimates of proved oil reserves in the United States stood at roughly 30 billion barrels. Yet over the past 30 years, more than 77 billion barrels of oil have been produced here. In other words, over the last 30 years, the United States produced more than two and a half times the proved reserves we thought we had available in 1980. Thanks to new and continuing innovations in exploration and production technology, there’s every reason to believe that today’s estimates of reserves are only a fraction of what will be produced and delivered tomorrow—not only here in the United States, but across the entire North American continent. Unfortunately, even as updated data show plentiful future supplies of domestic energy, driven by new technologies, a significant movement has emerged. This movement’s mission is to advance and perpetuate falsehoods and inaccuracies with respect to the volume and availability of energy resources in and under our country and continent.

In this paper we turn our attention to the subject of implementation. Some investors may choose to invest only in self-selected individual securities: stocks, bonds, futures contracts, properties, cash instruments, etc. Much more often, however, implementing some or all of the portfolio will involve directing money to one or more professional portfolio managers who will, through an index fund, a mutual fund, a partnership, or a separate account, buy and sell individual securities on the beneficial investors’ behalf.

2011 was another impressive year for global gold demand: volume grew 0.4% to 4,067.1 tonnes. Investment was the main driver of growth, although jewellery and technology were resilient in the ace of higher gold prices. Record mine production was offset by lower recycling activity and significant central bank purchases.

In the larger policy debate about getting to sustainable debt levels in most developed economies, people are making critical assumptions that, when we consider the business cycle, are highly questionable. If such assumptions, like those about long-term growth and the likelihood of recession, don’t hold, a lot of bets are off. For years we’ve been honing in on a very ominous pattern in the United States. Actually this goes back to the summer of 2008 (before Lehman), when we realized that we were entering an era of more frequent recessions than anyone was used to. Further research shows that these patterns also hold for much of Europe – let me explain.

Greece made mixed progress towards the ambitious objectives of the first adjustment programme. Several factors hampered implementation: political instability, social unrest and issues of administrative capacity and, more fundamentally, a recession that was much deeper than previously projected. Important fiscal targets were missed, which led to the adoption of additional consolidation measures throughout 2010 and 2011. However, Greece achieved a substantial reduction in the general government deficit: from 153⁄4 per cent of GDP in 2009 to 91⁄4 percent in 2011. This fiscal adjustment was necessary given the extremely high deficit reached in 2009. The adjustment is much larger than most other fiscal consolidation episodes in EU countries observed in the past. This fiscal consolidation had to be achieved over a period in which the economy contracted by more than 11 percent, which was unavoidable given the substantial positive output gap that had built up due to the non-sustainable policies conducted until 2009.

March, 2012 - "There is nothing novel about the index versus active debate. It has been a contentious subject for decades, and there are a few strong believers on both sides, with the vast majority of investors falling somewhere in between. Since it was first published ten years ago, the SPIVA Scorecard has served as the de facto scorekeeper of the active versus passive debate. Over the last decade, we have heard passionate arguments from believers in both camps when headline numbers have deviated from their beliefs."

The 22nd wave of the Retirement Confidence Survey (RCS) finds that Americans’ confidence in their ability to afford a comfortable retirement is stagnant in the face of more immediate financial concerns about job uncertainty, debt, and financial insecurity. At the same time, the percentage of workers1 saving for retirement continues its gradual decline, and many remain uncomfortable using new technologies to help them manage their finances.

"The recent polarized reaction to the prospect of changes to Old Age Security (OAS) recalled the debate over Canada and Quebec Pension Plan (C/QPP) reform in the 1990s. Happily, persuasion and adept design got the C/QPP reforms done. A similar success is possible with OAS and the Guaranteed Income Supplement (GIS), especially if policymakers give those programs a key C/QPP feature: letting participants choose when to start their benefits, and reap rewards if they wait."

Quite simply, technical analysis is the study of investor behaviour and its effect on the subsequent price action of financial instruments. The main data that we need to perform our studies are the price histories of the instruments, together with time and volume information. These enable us to form our views, based on objective facts.

"This is a research paper – but not one based on numbers. Instead, the data is composed of stories and pictures. Women’s stories and pictures, in fact.

In 2010, I conducted a survey of a thousand women, followed up with indepth interviews and then published a white paper on Canadian women’s financial behaviour and attitudes: Financial Lives of Girls and Women. The most important finding was that over half of women said that their financial knowledge was principally acquired through informal instruction from other people.

Not from university text books, not from newspapers, not from financial institutions.

Women learnt about money and success through real stories from real people: mentors, role models, families, friends – even through negative examples like watching a parent struggle with debts."

January 2012 - "This Energy Outlook contains our projections of future energy trends and key uncertainties, based on our views of the evolution of the world economy, of policy, and technology.This is our view of the most likely outcome for world energy supply and demand to 2030; it is not necessarily the energy world we at BP wish to see.

This year we examine in more detail several important facets of the global energy story: the pathways for economic development and energy demand in China and India; the factors affecting the energy export prospects of the Middle East; and the “drivers” of energy consumption in road transportation."

"In light of recent market and macroeconomic turmoil, investors would be prudent to take a closer look at the various risks associated with their investment portfolios as well as the broader market. In general, greater economic uncertainty tends to become reflected in the market through increased volatility. Typically, as the range of potential outcomes for companies becomes wider, so, too, does the potential value of their stock prices. In periods of high volatility, stocks tend to exhibit wide price swings, whereas low volatility is usually characterized by less-dramatic movements in price."

2012 is proving to be the ‘Year of the Central Bank’. It is an exciting celebration of all the wonderful maneuvers central banks can employ to keep the system from falling apart. Western central banks have gone into complete overdrive since last November, convening, colluding and printing their way out of the mess that is the Eurozone. The scale and frequency of their maneuvering seems to increase with every passing week, and speaks to the desperate fragility that continues to define much of the financial system today.

The Greek government has agreed to reduce government employment by 150,000 workers by 2015, to cut the minimum wage by 20 percent (and by 32 percent for those under the age of 25); and to weaken collective bargaining. All of this will have the effect of reducing living standards for workers and redistributing income upward.

The economic theory behind these changes is that of “internal devaluation,” in which wage costs, lowered by the recession and high unemployment, are pushed down far enough so that the economy becomes more competitive internationally and can recover through exports. But after four years of recession and reaching record-high unemployment, Greece’s Real Effective Exchange Rate is still higher than it was in 2006. In other words, there has still been no internal devaluation.

Various forms of push-back on the dividend-paying theme have been a mainstay during our career in this industry. During the 1990s, for example, we were told that a dividend initiation or increase was corporate admission of low future earnings growth. Arnott and Asness (2003), Zhou and Rudland (2006) and others —including ourselves— have shown that this low-growth generalization fails empirical scrutiny.

Our recent reports (please see our January 11 and 25 “Canadian Equity Strategy (Bi-weekly)” reports) have approached the dividend theme from two different angles, i.e., growth and yield. Both are successful in achieving

superior returns on an absolute and risk-adjusted basis, and both styles merit consideration when building a portfolio. When asked to choose one over the other, our answer is simple: buy into both or, simply put, “go 50-50”.

Over the past three years, which can be characterized by volatile market conditions, 63.96% of actively managed large-cap funds were outperformed by the S&P 500, 75.07% of mid-cap funds were outperformed by the S&P MidCap 400 and 63.08% of the small-cap funds were outperformed by the S&P SmallCap 600.

February 15, 2012
by Center on Budget and Policy Priorities, June 23, 2011

Moreover, a new tax holiday would increase budget deficits by tens of billions of dollars over the coming decade. And unlike the 2004 repatriation holiday, which was sold as a “one-time-only” event, a second holiday would send a powerful message to corporations to shift investment and jobs overseas and hold the profits there — until yet another tax holiday is declared. Indeed, enactment of another such tax holiday would further embed the shifting of investment, jobs, and profits overseas as a major tax avoidance strategy for many U.S. multinational corporations.

As specified in law, and to provide a benchmark against which potential policy changes can be measured, CBO constructs its baseline estimates of federal revenues and spending under the assumption that current laws gener- ally remain unchanged. On that basis, the federal budget will show a deficit of nearly $1.1 trillion in fiscal year 2012 (see Summary Table 1). Measured as a share of gross domestic product (GDP), that shortfall will be 7.0 percent, which is nearly 2 percentage points below the deficit recorded last year but still higher than any deficit between 1947 and 2008.

January 27, 2012
by Office of the Superintendent of Financial Institutions Canada

January, 2012 - "Given the long-term nature of the Plan, the fact that its stewards are the federal, provincial and territorial governments, and the strong governance and accountability framework of the Plan, it is unlikely that the Plan would become insolvent. Therefore, if the Plan’s financial sustainability is to be measured based on its asset excess or shortfall, it should be done so on an open group basis that reflects the partially funded nature of the Plan, that is, its reliance on both future contributions and invested assets as means of financing its future expenditures. The inclusion of future contributions and benefits with respect to both current and future contributors in the assessment of the Plan’s financial status shows that the Plan is able to meet its financial obligations and is sustainable over the long term."

However, downside risk is significant and bond prices remain under pressure, not least because of uncertainty over the Greek debt exchange.

Nevertheless, while no panacea, ECB liquidity support to banks is positive for stabilising European financial markets and creating the conditions for growth, and averts a direr outcome for the Euro area.

Canada’s pension Crisis has been the subject of debate for the past couple of years. More than 11 million Canadian workers don’t have a workplace pension plan. And public pension plans—Old Age Security and the Canada Pension Plan—that everyone has, don’t provide enough for people to live on in retirement. To make matters worse, most Canadians are not making up for their lack of a pension plan by saving for retirement on their own. Less than one-third of people entitled to contribute to RRSPs actually do so. There is now more than $600 billion in unused RRSP contribution room being carried forward. And only about one-third of Canadian households are currently saving at levels that will generate sufficient income to cover their non-discretionary expenses in retirement.

According to an understanding reached at the summit of European heads of government on October 26, 2011, the Greek government, within the next few months, will attempt to persuade private creditors holding about EUR 200bn in its bonds to voluntarily take a 50 percent reduction of the face value of their bonds.

However, according to calculations by J.P. Morgan, only about EUR 120 bn of Greek government bonds are held by large institutional investors such as banks, pension funds, and insurance companies. This leaves up to EUR 80 bn in the hands of asset managers, sovereign wealth funds, and some retail investors. For the most part, these holders are seeking to maximize returns and have no desire to build reputations as co-operators with the Eurozone governments. The fact that roughly EUR 120 bn worth of bonds will be tendered by the big holders regulated means that Greece will come out of the exchange with a reduced debt load and will be better able to pay its creditors. Under those conditions, the question for the non-institutional investors is this: Why tender, especially if the exchange is voluntary in the sense that Greece is expected to continue its debt service to non-tendering creditors after the exchange?

January 8, 2012
by Committee on Homeland Security and Governmental Affairs United States Senate

May 20, 2008 - "You have asked the question, 'Are Institutional Investors contributing to food and energy price inflation?' And my unequivocal answer is 'YES.' In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action."

January 7, 2012
by http://www.openeurope.org.uk/research/ECBlenderoflastresort.pdf

"As Bundesbank President Jens Weidmann vividly put it last Thursday:

“It is like an alcoholic saying that 'I need to get a bottle tonight. Starting tomorrow I will be clean and abide by the rules, but I need the bottle tonight'. I don't think it is sensible to give the alcoholic the bottle. He won't have an incentive to solve the problem.”

"Through its bond-buying programme and bank liquidity provisions, ECB exposure to Portugal, Italy, Ireland, Greece and Spain (PIIGS) has reached €706bn, up from €444bn in the early summer. That is a €262bn, over a 50% increase, in only six months. This highlights the reliance on the ECB and the increasing severity of the crisis. Though the perception in the media and elsewhere is quite different, it also points to the fact that the ECB has been far from inactive over the past few months, and yet eurozone leaders have not used the time bought by ECB intervention to find a solution to the crisis. This trend does not bode well for those who call on the ECB to intervene further."

All things considered, DBRS continues to view the pension situation as manageable for most companies; this does not negate the reality that a sizable defined-benefit pension plan represents a very long-term obligation for a company, with inherent risks and uncertainties that could lead to funding pressures at inopportune times. Specifically, cyclical companies that are pressured by recessionary conditions are likely to also experi- ence additional pension funding pressure at the same critical time as investment returns sour and discount rates remain low. Because DBRS closely monitors these plans and takes their challenges into consideration on an ongoing basis, it would be unusual for a short-term swing in fortunes to result in a rating change unless this occurred in combination with other meaningful challenges.

Securities or investment strategies mentioned in the InvestingForMe website may not be suitable for all investors or investment portfolios. The information contained in this website is not intended as a recommendation directed to a particular investor or class of investors and is not intended as a recommendation in view of the particular circumstances of a specific investor, class of investors or a specific portfolio. You should not take any action with respect to any securities or investment strategy mentioned in this website without first consulting your own investment criteria and financial circumstances in order to ascertain whether the securities or investment strategy mentioned are suitable in your particular circumstances. This information is not a substitute for obtaining professional advice. The commentary, opinions and conclusions, if any, included in this website represent the personal and subjective views of the writer who is not employed as an analyst and do not purport to represent the views of Investing For Me Education Inc. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither Investing For Me Education Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. The information on this website is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information contained in InvestingForMe’s website is furnished on the basis and understanding that neither Investing For Me Education Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. InvestingForMe.com is a website owned and operated by Investing For Me Education Inc. for educational purposes only. Used under license.

+ Performance of the Sample Portfolios (Balanced and Income) does not take into consideration management fees, transactions costs or other account expenses that investors might incur. Past performance may not be repeated.